IPO Watch: Someone Got Zipcar Very Wrong (ZIP)

Zipcar Inc. (NASDAQ: ZIP) is a hot IPO.  That is good, right?  It would be in most cases except for the amount of money this leaves on the table.  Investors who were allocated IPO shares are going to obviously be happy.  The company and its backers probably feel a bit ripped off today. Zipcar’s IPO had a price range of $14 to $16 and priced at $18… Shares are up about 57% around $28.30 and its opening price out of the chute was $29.00 this morning.

Zipcar was one of our TOP 17 IPOs TO WATCH IN 2011.  We knew it would get a reception if the market held up, but this reception is far greater than what we would have guessed considering the state of things today.

The IPO was 9,684,109 shares of its common stock, and the breakdown of shares sold was 6,666,667 shares from the company and 3,017,442 shares sold by selling stockholders.  Where this is going to potentially upset the company’s shareholders is that the overallotment option was from the selling stockholders giving underwriters the option to buy up to an additional 1,452,617 shares at the initial public offering price.  You can rest assured that the underwriters have already exercised that option and this effectively means that those shareholders sold that many more shares $10 or $11 under the market.

Goldman Sachs and J.P. Morgan were the joint book-runners; co-managers were Cowen and Company, Needham & Company, and Oppenheimer & Co.  It is the underwriters rather than the company which actually sets the pricing of a deal.  When companies see a 50% gain in the first day of trading, it is obvious that the deal was mispriced.  Some companies do not mind, others find themselves (and their venture backers) infuriated.  These IPO investors who are suddenly one-day-winners did not take the risks that the market could close off and leave their money locked up for years.  Yet, some new investors who were allocated IPOs were up 50% or more.

Investors need to know that the company listed 38,386,565 shares outstanding that is broken down on a fully diluted basis of 31,719,898 shares of common stock outstanding on “an as converted basis” as of March 15, 2011.  That figure excludes items as follows:

  • 5,237,375 shares of common stock issuable upon exercise of stock options outstanding as of March 15, 2011, at a weighted average exercise price of $6.74 per share.
  • 1,593,167 shares of common stock reserved as of March 15, 2011 for future issuance under its equity incentive plans;
  • and 1,694,836 shares of common stock issuable upon exercise of warrants outstanding as of March 15, 2011, at a weighted average exercise price of $5.37 per share.

After 2:30 PM EST today there has close to 10 million shares in trading volume.  We’ll be counting the float as just over 11 million shares now with that overallotment option.  Companies want hot IPOs because it is great PR and because it means money gets made.  Still, leaving over 50% on the table is an obviously mispriced deal.