The initial public offering of Twitter (NYSE:TWTR) went a lot better than Facebook's (NASDAQ:FB) IPO did last year, with the stock trading in a range of $45 to $50 during its opening day. But because of where lead underwriter Goldman Sachs (NYSE:GS) helped price the offering, Twitter only received $26 per share for all the stock it offered. That left many investors asking a key question: did Twitter just get ripped off?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the question of whether Wall Street takes advantage of companies by underpricing their IPOs. Dan observes that on one hand, a positive IPO like Twitter's generates a lot of positive buzz about the company, helping it with future secondary offerings. As we saw with Facebook, an IPO that doesn't lead to higher prices can create negative sentiment that can hurt a company for a long time. In any event, Dan points out, one clear winner is the underwriter team on a successful IPO, with Goldman and other underwriters such as Morgan Stanley (NYSE:MS) and JPMorgan Chase (NYSE:JPM) taking their cut and getting positive responses from their favored clients who participate in a successful IPO.
Fool contributor Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends Facebook and Goldman Sachs and owns shares of Facebook and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.