Question

Initial public offering On April 18, 2019, the video conferencing company, Zoom completed its IPO on the Nasdaq. Zoom sold 911,434 shares of Class A stock with 1 vote per share at an offer price of $36 and underwriter discount of $1.75 per share. Zoom's closing stock price on the first day of trading on the secondary market was $62.57, and 24,070,086 Class A shares were outstanding. There were also 232,318,285 shares of Class B common stock with 10 votes each outstanding and held privately by Zoom insiders.

a. Calculate the total proceeds for Zoom's IPO.

b. Calculate the percentage underwriter discount.

c. Calculate the dollar amount of the underwriting fee for Zoom's IPO.

d. Calculate the net proceeds for Zoom's IPO.

e. Calculate Zoom's IPO underpricing assuming that market value per share is the same for both classes of stock.

f. Calculate Zoom's market capitalization.

g. What percentage of Zoom's total common stock (Class A plus Class B) do Class A stockholders own after the IPO? What percentage of votes do they control?

Answer 1

a.

Total proceeds for Zoom's IPO = 911,434 * 36 = $32,811,624

b.

Offer Price = $36

Underwriter discount = $1.75

The percentage of underwriter discount = 1.75/36 = 0.04861 = 4.861%

c.

The dollar amount of the underwriting fee for Zoom's IPO = 911,434 * 1.75 = $1,595,009.50

d.

The net proceeds for Zoom's IPO = $32,811,624 - $1,595,009.50 = $31,216,614.50

e.

When a new stock closes its first day of trading in the market above IPO price, the stock is considered as underpriced for the difference.

In the Current Case, IPO price = $36

Market Price on the first day of trading = $62.57

Underpricing = ((62.57-36)/36)*100 = 73.80%

f.

Market Capitalization:

Assume the market price is the same for both types of stock.

Total No. of shares = 24,070,086 + 232,318,285 = 256,388,371

Market Capitalization: = 256,388,371 * $62.57 = $16,042,220,373.40

g.

Percentage of Zoom's total common stock (Class A plus Class B) do Class A stockholders own after the IPO = 24,070,086 /  256,388,371

= 0.09388 = 9.388%

Voting percentage:

Voting rights of Class A = 24,070,086 * 1 = 24,070,086

Voting rights of Class B = 232,318,285 * 10 = 2,323,182,850

Voting percentage 0f Class A: 24,070,086/2,323,182,850 = 0.01036 = 1.036%