Did Zipcar’s Underwriters Just Give It the Shaft? Yes, and No; Here’s Why

Earlier today, Business Insider’s Henry Blodget wrote a sensational piece titled, “ZipCar’s IPO Underwriters Just Screwed the Company to the Tune of $50 Million.” In it, Blodget pointed to ZipCar’s opening price of $30 – which is $12 more than the institutional clients of Goldman Sachs and JPMorgan (and other insiders) paid. He accused the banks of selling ZipCar’s stock “way too cheaply.”

“It means that the institutional investors who bought ZipCar’s stock last night are high-fiving each other this morning, celebrating their instantaneous 50% gain.  (Lots of them are probably also dumping some stock),” wrote Blodget.

In a follow-on piece, Galen Moore of the Boston Business Journal suggests that Blodget is mistaken, and that “[i]n all likelihood, the Goldman clients who bought Zipcar shares paid something in the neighborhood of $19 – then turned around and quickly sold them for $19.50. Those buyers quickly re-sold the shares, and so on down the tiers of hopefuls who vied to get their hands on Zipcar before the market opened.”

The bottom tier paid $29.50, “and may be biting their nails now, as it looks like the stock will close the day around $28,” Moore wrote.

So who is right — Blodget or Moore? Both, suggests Scott Sweet, managing director of the IPO and secondaries advisory firm IPO Boutique.

“Blodget said the same thing with [the December IPOs of] Youku and Dangdang,” Sweet says. “Any time an IPO pops like this, people always say that the company got the short end of the stick.

“But I’ve been covering the market for 38 years and seen the same thing happen hundreds and hundreds of times,” Sweet says. “And those startups whose stocks stay up and don’t collapse due to missed earnings have a very strong chance of doing a follow-on secondary at top dollar later. That’s where they really cash in, because thrilled buyers then love the company.”

In the meantime, Sweet observes, the “IPO players and hedge funds” have certainly “locked in their profits.”

As with every deal that has “major demand like this” – – ZipCar’s shares were oversubscribed by 20 times – “the players know it and they’re in heavy and obviously there wasn’t a big allocation. And based on the fact that it traded the float more than the offering, there was massive flipping,” says Sweet.

At least, there was massive flipping by some investors. Scott himself bought an undisclosed amount of shares at $18 and he says he held on, selling them this morning at $30. (They closed today at $28.)

“It’s still trading frantically,” said Sweet as we ended our call. “It’s starting to slow down now [in after hours trading], he said, “but for the next couple of days, I wouldn’t put widows and orphans in it.”