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0 pointsdarth_avocado2mo ago0 comments

If roadshows guaranteed accurate valuations, pets.com wouldn’t liquidate within a year of IPO.

Again, not debating that SpaceX isn’t a legit company or that it’s profitable. But underwriters agreeing with high valuations to stocks that collapse once they go public isn’t unheard of.

Edit: and I will concede that I should’ve phrased my initial thoughts better. Credit rating agencies and underwriters do very separate things, just like IPOs and MBS are two very separate things.

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jamiequint2mo ago· 1 in thread

You said: "underwriters ... doing the same thing as the credit agencies did in 2008 by giving underwater mortgage backed securities a AAA rating"

That isn't what is happening at all.

In an IPO the underwriters and the company collaborate to set the price based on approximate demand and what they want the quality of the holders to look like.

In the roadshow, the company is very constrained as to what they can say or disclose outside of the scope of the S-1. They can't include MNPI, forward looking financial projections, etc. Underwriters are also prohibited from sharing MNPI, or publishing marketing disguised as research.

So I guess if you're saying the SpaceX S-1 is completely full of shit and there's hidden risk in it, than it could be similar to 2008, but in this case nobody is manufacturing a rating, and those material misrepresentations would constitute securities fraud. Investment banks and ratings agencies aren't the same thing at all, and the buyers of marginally profitable IPO stocks are (hopefully) different than those of AAA MBS.

darth_avocadoOP2mo ago

Yes. I updated my earlier comment and I concede I should’ve worded my earlier comment better.

I agree underwriters and credit agencies are very different just like IPOs and MBS are very different. I don’t think SpaceX is committing fraud.

> That’s just money in the door and the underwriters that seem to think the business is worth $1.75T.

I was responding to this particular comment.

In 2008, the credit rating agencies weren’t necessarily found to be guilty of wrongdoing, but a variety of reasons let them roll with AAA ratings on junk MBS anyway. Similarly the underwriters are not going to be committing crimes to facilitate IPOs. They are after all taking the risk of guaranteeing the sale for the company. However, if a company wants to roll with a high valuation, even if the fundamentals aren’t matching the valuation, if there are buyers, the underwriters will set the price supporting that high valuation. They are not incentivized to accurately measure a company’s worth like the comment I was responding to suggests.

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