Skip to Content

Why Snap’s IPO Was Actually a Success

The blessed moment has occurred. Snap is public. The “camera” company priced its shares at $17 a share, they opened at $24, traded as high as $26—too bad for those investors, right?—and settled around $24. At a 44% pop and a $28-billion valuation, it was a tremendous success for Snap.

But wait. Party poopers like my colleague Shawn Tully say the day was a “disaster” for Snap (SNAP). Tully says Snap left $1.1 billion “on the table,” a favorite phrase for those who’d like to make hay of the difference between the valuation retail investors were willing to pay and what investment banker underwriters actually charged their clients, the hedge funds and mutual funds that participated in the offering.

To Tully, Snap was foolish to allow itself to be taken for a ride by its bankers, Morgan Stanley (MS) and Goldman Sachs (GS).

Get Data Sheet, Fortune’s technology newsletter, where this essay originated.

My colleague’s math is impeccable, but his reasoning is suspect. First, there’s a big difference between what funds committing tens of millions of dollars say they are willing to pay and what click-to-buy investors do with their small lots. It’s fashionable to say the bankers are favoring their investor customers over the issuers of the stock. But the underwriters are ones on the hook for getting a deal done. That’s what underwriting means.

Furthermore, we’ve seen many times that exuberant initial prices simply don’t hold. Twitter (TWTR), Fitbit (FIT), and Lending Club (LC) are three examples of upbeat IPOs that trade below their IPO prices. Any company and their bankers would rather forgo day-one gains rather than suffer the shame of disappointed investors down the road.

Snap should bask in the glow of a successful offering. There’s no guarantee it will last.