Stock market decline takes shine off 2011 IPOs
Saturday, December 17, 2011
NEW YORK (AP) — This was supposed to be the year that the IPO market fully recovered from the financial crisis, as the economy and global stock markets healed.
Six months into 2011, the market for initial public offerings was stronger than it had been since before the recession. The number of deals seemed on pace for a decade high. IPOs shares were, on average, in the black.
After a strong start, the market for new stock offerings fizzled in 2011 as the prospect of a global slowdown and a prolonged European debt crisis battered financial markets. High-profile Internet companies like Groupon, LinkedIn and Zynga, which went public Friday, attracted attention. But overall, companies didn’t raise as much as they hoped for through IPOs. Main Street investors, who generally don’t have access to IPO shares until after they start trading, were likely the biggest losers.
Many companies had to cancel their debuts, delaying paydays for their early investors. More companies withdrew their IPO plans than have since 2008, the depths of the recession, according to IPO investment firm Renaissance Capital.
IPOs that went public this year, as a group, lost 13 percent 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, according to advisory firm IPO Boutique.
“The only way to have played the game this year — the way I always play it — is to have flipped on day one. Take your profit and move on. People who haven’t have been decimated,” said long-time IPO investor Scott Sweet, who owns IPO Boutique.
This week, the last before the IPO market shuts down for the year, spotlights 2011 trends. Twelve companies had lined up IPOs, which would have been the busiest week since November 2007. That didn’t happen.
Business social network Jive Software Inc. and luxury retailer Michael Kors Holdings Ltd. priced high, sold more shares than expected, and soared on day one. Retail companies like Michael Kors and Dunkin’ Donuts parent Dunkin’ Brands Group Inc. were popular with investors this year, as well as tech companies.
Facebook games maker Zynga Inc. raised $1 billion Thursday night, in the biggest Internet IPO since Google’s 2004 launch. That valued it at $7 billion. But when the company filed to go public in July, market watchers thought the company had potential for a valuation of $20 billion or more.
On Friday, shares closed down xx percent.
Of the other nine companies slated for the week, three delayed their debuts. Six raised less money than they’d expected. Two of those are already more than 15 percent below their IPO price, giving investors a loss.
Other high-profile tech companies that went public this year have slid from their first-day pops. Jobs networking site LinkedIn more than doubled in its debut. While it’s still up about 50 percent from its initial price, shares have lost 30 percent from the first trading day. Investors who bought in the first day after trading began have likely lost money.
It’s a common story:
— In its January debut, online content company Demand Media Inc. rose 33 percent. It’s since dropped 70 percent.
— May: Yandex NV, the Google of Russia, popped 55 percent. It is down 54 percent since.
— June: Internet radio company Pandora Media Inc. rose 9 percent. It has dropped 40 percent since.
— July: Real estate listings website Zillow Inc. rose 79 percent, but has fallen 34 percent since.
— November: Groupon Inc. rose 31 percent, but has dropped 14 percent since then.
Technology companies that went public in the past 12 months, overall, are down 13 percent, according to Renaissance Capital. Part of that stems from broader market declines. The Standard & Poor’s 500 index is down about 8 percent from the end of June.
Daniel Graeber, a journalist and professor from Grand Rapids, Mich., bought 15 shares of Groupon for $30 each the day it went public, hoping the deals company would be the next Google Inc. or Amazon.com Inc. Graeber, 38, has lost money so far, but says he’s modestly optimistic that shares will recover. And despite his loss and general market doldrums, he says he’s intrigued by Facebook.
Market watchers expect more big tech deals next year: Facebook, local reviews site Yelp and online retailer Gilt Groupe. Of the three, only Yelp has filed to go public.
Another IPO bright spot, foreign companies, has faltered. Chinese companies made up more than a quarter of U.S. IPOs in 2010 and led foreign deals in the first half of the year. But those deals have disappeared amid reports of probes by U.S. regulators and a slowdown in the Chinese economy. Online video company Tudou Holdings Ltd. was the last Chinese company to go public in the U.S. in August. Shares are off 60 percent.
The global economic uncertainty and poor returns throughout the IPO market may also mean less cash for the 200 companies hoping to go public in 2012.
“They want to get the company public, they’ll do a smaller deal,” said Frank Maturo, head of Americas cash equity capital markets at Bank of America Merrill Lynch.
LinkedIn and Groupon sold less than 10 percent of their outstanding stock in their IPOs, which is considered a small percent of overall stock to put up for sale in an offering. The small supply helps boost demand for IPO shares.
The IPO declines and weak stock markets may create an opportunity for investors to buy shares more cheaply as companies and bankers rethink prices for shares.
“People haven’t made money in the IPO market, people are skeptical. But deals can get done if they get priced right,” said IPO analyst Francis Gaskins of IPOdesktop.
Use the comment form below to begin a discussion about this content.
Please review our Policies and Procedures before registering or commenting