Everyone has heard stories of investors getting in on the ground floor of newly public companies and making an absolute killing. While these stories are true, particularly for the chosen few who are allocated shares by their broker prior IPO, things are not always as rosy for the rest of us who are forced to wait until the company actually goes public to get a piece of the action. With this in mind, 2011 could go down in history as the year of the IPO.
As of May 31, 69 IPOs have been launched with a combined value of $23.9 billion. In fact, 2011 is shaping up to be the best year ever in the IPO business since those heady days at the turn of the century. Just how have these IPOs performed since launch? Let’s take a look at several of the biggies.
Like clockwork, the Internet is all the rage again in the hottest of the IPOs. Companies like Linked In (Nasdaq:LNKD), Russia’s equivalent to Google (Nasdaq:GOOG), Yandex (Nasdaq:YNDX), and the Chinese social networker, Renren (Nasdaq:RENN) have raised billions via their IPOs in the last several months. Even larger launches are pending this year for Internet firms like Groupon and Facebook. While soaring on their launch day, enriching the lucky few to get pre launch shares, most of these biggies have disappointed investors with their actual market performance.
For example, Yandex soared 55% on its first day of trading but has given back about 14% since that time. LinkedIn also exploded on the first day but has fallen back about the same percentage.
“LinkedIn had the combination of a small float plus investor excitement, and that’s what caused it to have such a major spike,” Darren Fabric, managing director at IPOX Capital Management LLC, explained to the Wall Street Journal.
The good news at LinkedIn is that lead investment bank in the IPO, Morgan Stanley(NYSE:MS) still owns 23% of the shares. This seems to be a vote of confidence in their baby, to say the least.
Renren is perhaps the most risky of all the new IPOs. Launched at $14 per share, price rocketed to $24, but now has fallen back to under the initial price of $14. China is a gigantic country, but let’s face the facts, it remains very restrictive for free enterprise. Add political risk to the already risky social space and it’s a recipe for trouble.
Now with the hugely anticipated IPOs of Groupon and Facebook pending, will they make good investments right off the bat? Well, if the performance of other internet IPOs is any signal, the answer is no. There will be many ways to play these companies in the future, but going long soon after the issue date doesn’t seem to be a smart move. Good Trading!