VMWare's Rising Tide Won't Lift All Boats


[qi:053] When is a good thing too much of a good thing? It’s surely a question somewhere in the back of the minds of investors in VMWare (VMW). Since the stock went public two weeks ago — at $29 a share, 21% above its initial price of $24 a share — it has rocketed 150% to close Monday at $72 a share.

It’s now worth three times as much as underwriters first thought it was worth.

Did the lead underwriters mess up and leave tens of billions of dollars on the table? I don’t think so. If one were cynical, one would say Citicorp, JP Morgan and Lehman stand to gain more by priming the IPO pipeline with a superstar offering. The market for tech IPO’s now has a very appealing poster child.

Nor does EMC (EMC), VMWare’s proud parent, stand to lose much. EMC received a healthy portion of VMWare’s IPO proceeds. But its net earnings will also gain from the surging stock if it records its 87% stake in VMWare as investment income. As for VMWare itself, what it lost in potential proceeds, it could make up for in free branding.


Constable Odo

What difference does it make whether the stock is actually worth what investors are paying for it. If you got in a day after the IPO and invested some money and sold it a week or two later, you’re still going to have made some decent money. You get in, then get out. That’s all that really matters. If the stock price collapses in a month or two, that’s the breaks. It won’t be the first time a stock has been overvalued. It has nothing to do with actual worth, only greed. Many investors are willing to take the risk as long as a stock is steadily climbing. One or two bad days of a VMWare stock price drop will have the rats leaving the sinking ship.

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