×

Cramer: Holy smokes, Snap didn't get screwed up! 4 things that could have gone wrong

Jim Cramer has become used to the idea that stock exchanges and bankers tend to mess up large initial public offerings. So, when Snap went public and didn't get screwed up, he was shocked.

"The inability of the stock exchanges and the bankers themselves to handle high-profile hot merchandise has created a sense of fragility about the whole asset class and turned a lot of people off to stocks just when they were beginning to gather a full head of steam with the public," the "Mad Money" host said.

Snap made its debut in a 200 million share public offering priced at $17 a share on Thursday, and began trading at a $7 premium, at $24 a share on the New York Stock Exchange. While some investors may regard the stock as being hopelessly overvalued, Cramer recognized that it could have played havoc on the entire market if something had gone wrong.

Watch the full segment here:

It could have turned out like the Facebook deal, which prompted concern for the entire underwriting process. It could have been like Twitter, which was too hot too soon.

Snap could have been designed to offer a big pop like what happened with Zynga and Groupon, as only a small amount of stock was released initially and there was real angst about how the stock market can store wealth.

"When one of these blows up, it makes you feel reckless trying to save money with these flimsy pieces of paper," Cramer said.

Based on the action for Snap, Cramer valued the stock at 35 times sales, almost twice what Facebook sold for when it came public. But Facebook was on the verge of profitability and Snap isn't anywhere near it. While he couldn't condone paying that much for a stock, he pointed to the syndication process on Wall Street for the heavy valuation.

Still, it was a significant occasion that the deal managed to go off without a hitch Thursday. Here are four things that Cramer said could have gone wrong but didn't:

No. 1: It turned out that there was a lot of money around to buy shares of Snap. Sometimes with a big deal, investors will sell similar stocks to buy the stock that hit the tape. There was selling, but it took place in other groups outside of tech.

No. 2: Despite the expensive price of the stock, there wasn't any panic because it was handled in a smooth and practiced way .

No. 3: After Wednesday's rally, the market could have easily had a dramatic decline, but instead had more of a "garden variety" decline from the Dow's 21,000 level.

No. 4 Shares of Caterpillar were crushed when news broke that its headquarters were raided by federal authorities who were executing on a search and seizure warrant for documents and electronic information. This stock is a big component of the Dow and has a huge following, so the industrials could have been hammered. Instead, they barely moved.

"A declining day following a rampaging bull run is a sign of health, especially when it is associated with a gigantic, yet well run IPO. It should ultimately bring out more buyers than sellers, and more initial public offerings of companies that had been fearful to tap the markets," Cramer said.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com