A big pop says the shares were underpriced and the company left money on the table. A decline means the shares were overpriced and the buyers may become reluctant in the future.
For a company that only IPOs once, they don't really care if buyers become reluctant next time but they do care if a narrative develops that they have a loser stock.
While you may think that just the IPO is finished "that part of the story is done", it is very specifically that part of the story that we are currently discussing.
You'd have to be blind not to have noticed the rather irrational interest that the investing public takes in IPOs lately, especially tech IPOs. Despite both the 2001 dot-bomb and the 2007-2009 crunch, there are clearly a large number of investors hoping for a low-probability / high-reward speculative investment in tech IPOs regardless of the unerlying business fundamentals.
Pointing out that IPOs are typically a sucker's game is something worth repeating, I think.
In recent times a safe bet for the banks has been to underprice the IPO so that their big investor clients make lots of profit in the first couple of days, and then to weather the storm of the disappointed public company.
The newly public company won't actually do as much future business with the bank as the big investors will.
The share price is _not_ supposed to drop after an IPO. The insiders still have a lock-up of 6 months, so a lower price would be bad for them. Moreover, the investors in the IPO also want some upside. In the end, the IPO price is a negotiated price that takes into account a lot of considerations. Once public, the price is dictated by the last trade.
And "smalltime" investors shouldn't invest in IPOs because of the so-called winner's curse.
In the real world, market psychology and all, I think it's better for the medium term stock price to start off as something which the media will frame as a success story. I.e. better start at $80 and quickly rise to $100 than to start at $120 and quickly fall to $100.
Disclaimer: opinions based upon voices in head, not upon any kind of research.
An IPO is a mechanism for a company (and its investors and other stakeholders) to sell shares in exchange for money.
The investment bank that facilitates the IPO has the job of "marketing" those shares (and doing the administrative stuff around the IPO).
The goal in selling something is to get the best possible price. Therefore, a stock price that goes up at the date of the IPO and then declines below the initial price is the GOAL. It means the bank has done its job well. It got the maximum amount of money out of buyers.
If the price stood level, it would mean the bank had left money on the table. If the price went up immediately and then STOOD THERE, it would mean the bank severely underpriced the IPO. Thats the worst case scenario. If the price dips immediately and nobody buys, it just means the IPO was overpriced.
This also means that buying at IPO means that you're getting screwed unless you want to hold longterm. You're always paying a premium, unless you believe that the investment bank made a mistake. And you obviously have more data to make that bet than goldman sachs does. Obviously.
As a smalltime investor, for whom there is essentially unlimited liquidity in the market, just don't buy IPOs. And don't get excited over IPOs dipping below opening price. It just means you don't understand the mechanism.