2011: The Year of the Failed IPO Comeback

By Xavier Forneris

In my January 6 post, I talked about the Internet IPO’s of 2011, indicating that most of them had been either disappointments or total flops. I gave the example of the much-anticipated Zynga IPO (in December 2011). Zynga closed its first day of trading at 5% below the offer price; by Dec. 30, it had lost almost 6%. In fairness to Zynga, I could have mentioned bigger losers:

  • Friend Finder Networks (IPO in May 2011) fared even worse: at the first day close it was 21.5% down; by year-end, it had lost a whopping 92.3%, trading at 77 cents, from an offering price of $10. 
  • Tudou, the Chinese online video company, listed on the NASDAQ in August (offering price $29) and finished the year at $10.5, a 64% decline.
  • Renren, a social networking internet platform, also from China, was listed on the NYSE in May, at an offering price of $14 and ended the year at $3.55, losing almost 75%
  • Demand Media, the Santa Monica (CA) online content publisher was offered on the NYSE at $17 in January; it closed the year 61% down, at $6.65.

The other Tech or Internet companies that had IPO’s in 2011 and closed the year on 30 Dec 2011 with a stock price lower than the offering price included Pandora Media, Zipcar, Boingo Wireless, and Yandex. To be fair, I also mentioned a few successful Internet/Tech IPO’s in 2011: LinkedIn, Jive Software, Angie’s List, Zillow, Groupon, Fusion-io and Bankrate, all closed the year at a price that was above their respective offering prices. A few of them actually had a quite impressive performance:

  • LinkedIn gained about 40% between its IPO (May 19) and Dec. 30, the last trading day of the year. This was probably the best or one of the best-performing IPO’s of the year, across all industries, in the U.S.
  • Jive Software gained 33.33% between its IPO (Dec. 12) and Dec. 30
  • Angie’s List gained 23.85% between its IPO (Nov 17) and Dec. 30
  • Zillow gained 12.4% between its IPO (July 20) and Dec. 30.

But in spite of these few successes, the fact remains that we can’t call 2011 a successful year for Internet IPO’s. In fact, I mentioned a grim finding by Birinyi Associates: 19 of the 31 Internet and Social Media companies that went public in 2011 are trading below their offering price. Acccording to Renaissance Capital, stock of Tech companies that went public in 2011 have fallen 15%.

I’m not picking on Internet businesses. I did also mention that it was not just the Tech or Social Media companies that were on that “rocky IPO boat”. As 2011 showed the signs of a prolonged global economic slowdown and a worse-than-expected European fiscal crisis, and as the public anger at Wall Street only grew stronger (evidenced by the “Occupy Wall Street” movement) companies that dared to go public in the U.S. did not fare extremely well, across sectors and industries.

Collectively, IPOs that went public this year lost 13% of their value, the first negative return since 2008, and about two-thirds of companies that went public this year are trading below their offering price (Source: IPO Boutique).I have not looked at European IPO’s yet but I suspect that they did not fare much better. Because of the adverse environment and tepid investor reaction, several companies that had lined up for IPO’s chose to postpone them and to wait for “better days”. Those include, for instance, GSE Holding, FusionStorm Global, and Luxfer Holdings. As in the Tech sector, there were a few successes. One of the most talked about was the IPO of luxury clothing and accessories company Michael Kors Holdings Ltd., which was priced higher and sold more shares than expected.

Will 2012 be a better year for IPO’s, especially in the U.S.? I wish I had a crystal ball…Much will depend on the global outlook and how Europe manages its debt crisis. But you can bet that IPO’s will be watched very closely, as a bellwether for the overall economy. And no IPO will be observed more than that of Facebook, if Mark Zuckerberg indeed decides to go ahead with the IPO, as the rumour has it, perhaps in the first half or maybe the first quarter of 2012. Other closely watched Internet IPO’s will be those of Yelp (the reviews site) and Gilt Groupe (an online retailer), if they also get confirmed.

Those brave souls that decide to go public in 2012 should probably rely on proven tactics such as going for smaller deals (for instance 0ffering only 10% or less of the outstanding shares) and setting a conservative/lower offering price, to stimulate demand and increase chances of gain for investors.

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