By John Constine
Congratulations, Workday. Its share popped 74 percent when it IPOed on Friday . Or should I say condolences? $470 million ended up in the pockets of investors instead of the cloud startup’s war chest.
Meanwhile, Facebook (NASDAQ:FB) is called a flop for filling its coffers with $10 billion by pricing shares at nearly twice its current value. This all raises the question: How should Silicon Valley define a successful IPO?
Let’s be clear that I’m no career financial analyst, and this article will be a simplification. But there seem to be two conflicting motives in IPOs: raising the most money vs. displaying the most momentum.
Facebook maximized the former, an asset with concrete value. To buy out disrupters and fight off other giants like Google for top-tier talent, it needed gobs of cash. That’s what it got.
The only problem is that Facebook’s share price has sunk so low since that it’s generating scrutiny and may be hurting team morale. People are wary to invest in, develop on, or work for a loser, and if you look at the NASDAQ, that’s what Facebook is.
Luckily, it has natural defenses against the momentum loss. If you work there, you build something that a billion people, most of your friends, and maybe your Grandma use. You’re creating things that help people connect and share. It moves fast with a declared Hacker Culture. These make Facebook attractive to potential hires and third-party developers, offsetting the post-IPO slump.
Now let’s look at Workday. It either grossly underestimated demand, or it purposefully maximized for momentum. Either way it generated a massive pop, and got very little flack for it.
The share prices soared! That sounds great, except as Henry Blodget puts in a sharp Business Insider article, “Pops provide no advantage to the company other than a bit of extremely expensive and ephemeral excitement and PR.” I don’t fully agree, though. Maybe PR isn’t as reliable as money in the bank, but I believe public perception is actually quite important when you’re amidst a tech talent crunch.
Enterprise cloud software is critical and challenging to build. But despite becoming more consumer rather than CTO-focused, I wouldn’t say it’s sexy like a social network. Most people don’t grow up giddy to build the cloud. If Workday wants the smartest minds to work for it after it’s IPOed and the biggest rewards may have already been dealt out, it needs to look like a clear winner.
Meanwhile, having watched the vultures descend on Facebook, Workday may have played it safe, pricing shares conservatively to ensure positive momentum. It might not have needed those extra $450 million to buy anyone who looks dangerous. Seventy-four percent may have been overkill, but maybe prioritizing a rising price was the right move for Workday.
What Really Matters
So if you consider IPOs from this perspective, it’s not necessarily about raising the most money or getting the biggest first-day pop.
Workday only “wins” if it doesn’t end up without enough money to buy the scrappy new cloud kid on the block who might eat it’s lunch in three years. And Facebook only “flopped” if all the money it raised can’t convince people to board or stay on a sinking share price ship. Mo’ Money, Mo’ Problems, if you will.
What really matters is a company getting what it needs, not just the purse or the share price.