Demand Media IPO – Aftermarket

After opening at $22.55 on January 27, hitting an intraday high of $25 (!!!) and closing at $21.85 on day one, the shares of DMD have trended consistently lower. For the extremely curious, Yahoo! maintains a table of historical prices.

Anyone who doubts that the underwriters of Demand Media’s IPO artificially spiked the punch on IPO day should look at this chart. I’m sure that’s not enough proof for some of you that the markets are rigged. Clearly there has been a distinct downtrend in the share price of DMD since the IPO. In fact, anyone who bought shares in the aftermarket (i.e. not at the $17 offer price) is now underwater and sinking.

Meanwhile, the preferred customers of the underwriters — the ones who had their arms twisted to buy into the offering with the promise of better IPOs to come — have been shoveling the dreck out of their accounts as quickly as they can. Who else do you think has been selling?

How to Leave Suckers Holding the Bag

What will be interesting is the share action when the price closes in on the initial $17. The underwriters likely still have their over-allotment available to defend the offer price, so they’ll be buying back the shares they sold short as a price stabilization mechanism. That type of ammo runs out eventually.

Short sellers technically can’t get a borrow on this yet, since it’s not marginable for 30 days. However, don’t for a second believe that is stopping those with the deepest pockets. They can negotiate backroom side deals that allow them to borrow shares to sell short for a fee. Maybe we should start a pool or a poll to guess what day the shares of DMD first drop below the $17 offer price? It’s only a matter of time.

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