Groupon, Beware: Of 25 Hot IPOs, 20 Tanked Later

Posted by: Mark Gimein on November 4, 2011 at 10:56 AM

hotiposrev.png

Update: Pop! Groupon opens at $28, 40% above the $20 offering price. That would put it at #17 on the chart, tied with TAL and Yandex.

Groupon increased the size and price of its offering last night, raising $700 million and creating a new cadre of insta-millionaires. Now the market gets to watch if those shares will open for trading today at big premium to the $20 IPO price.

What comes after a blockbuster IPO tends to be less pretty. Above, a chart of the post-IPO performance of 25 hottest offerings of 2010 and 2011. There’s a lot of red: after the initial “pop”—the jump from the offering price to the open—20 of those 25 tanked. Many have fallen 50 percent from their first day opening price in the stock market* (one high profile example: Demand Media, down 68 percent since its January debut), a few more than 80%.

The float for Groupon is the lowest in a decade: 4.7% of shares are going to the public. That’s reminiscent of the grand days of tech mania: Palm, for example, sold just over 5% of shares in its IPO and ended its first day with a market cap of more than $50 billion. Most of those dotcom boom stories didn’t end well. (Click on the chart for a bigger version.)

Update: Reuters’ Felix Salmon points out over email that this left out a comparison to other IPOs and asks what’s normal. So: On average the 25 hot IPOs here have slipped 31% from their opening price. The total for all 333 IPOs from 2010/11 for which Bloomberg has data is -11.1%. And the average pop was about 7.7 percent. So you might call that normal.

For those who want a deeper dive into the data: Those numbers include those hot 25. If you take them out, the average pop was just 3.4% and the drop since the IPO was 7.5%. Since the start of trading, the hot IPOs clearly did worse than others. If you count from the offer price, the 25 IPOs that popped have done better. They’re up an average of 9.25%. But that only matters if you got an allocation at the offer. And if you did, you would have been wise to sell right away anyway.

*Clarification: The red (mostly) and green (occasionally) bars in the chart above show the change from the first day opening price (the first trade in the open market), not from the offering price. Earlier versions of this post left some folks uncertain about this. Some shares that down from that first tick are still—as one of the updates already noted—up from the offering price. The wording at the top of the chart is also revised to make this clear.

Graphic by David Yanofsky. Source: Bloomberg calculations.

Reader Comments

JPN

November 3, 2011 4:47 PM

Future success does not matter to the machine. The venture capitalists and early investors win as long as the IPO happens at all, anywhere near present evaluation. As long as there are more trading algorithms that will buy and dump Groupon IPO shares (and there are), the only people that lose are taxpayers who end up paying for the banks who have 2nd-rate trading algorithms.

telecrooks

November 3, 2011 6:28 PM

who cares about what happens after the IPO - executives made millions, underwriters and VC made millions, all courtesy of the common shareholder. Perfectly legal, and China has understood it very very well. Business Week you should investigate what happened to Sirf after Centrality was acquired; and tell us why a shareholder lawsuit was quietly settled at Cadence design (page 134 annual report) about corporate governance. Guess what - the same executives at Sirf and Centrality are now in charge of Cadence Design's future. Same story as Groupon, when the current CEO of Groupon did take his dot.com public during the boom, became a gazillionaire, and .... the company went bankrupt a year later ..... Welcome to Silicon Valley

liam

November 4, 2011 6:11 PM

This is a wildly misleading chart. Zillow offered at 20, had one trade at 60, closed the first day at $35, and has been in the 30s and high 20s since. It closed at 32 today.

Mark Gimein

November 5, 2011 12:31 PM

Liam, I don't think it's misleading. The grey bars show what an investor who got an IPO allocation and sold at the open got. The red and green bars show what happened to an investor who bought at the open. I understand that some folks want to say "Hey, but these shares are still above the offer price." That's right. But that doesn't help someone who bought it on the open market at all. And it's of very uncertain interest to the investor who did get an allocation at the offer. In most cases such investor would have gained most by selling at the open or close to it.

The performance from the offer price to the present may be relevant to employees and venture capital investors in a company like Groupon, whose shares are locked up (usually for a six month period). That's worth mentioning here, since after all this blog is devoted mainly to the national debate about wealth--including that of the latest crop of IPO millionaires--and the income gap.

chintan shah

November 7, 2011 3:09 PM

On a separate survey, 88% have no idea about what bankers are paid.

As someone who works in Investment banking, I can promise you that the vast majority of people working on Wall Street are mostly middle class people earning similar amounts of money to those who are comparably educated.

Keep in mind that people who work in banks are very well educated - Most have degrees in Economics, Computers or an MBA. Most people with those degrees in the North East make between $100,000 and $200,000 - a good average for most bank employees.

Pete Clark

November 7, 2011 9:58 PM

Especially in these companies with immature business models and equally inexperienced (at running a public company) senior management, no one has a hint at the true valuation until at least three quarters after the IPO. The prudent money already waits for the hype to settle down, and for Greater Fool prices to recede back to earth.

Sydayhott

November 23, 2011 6:44 AM

The word is not an arrow, and the heart stings .

ipad

March 26, 2012 6:39 PM

The layout of the weblog is absolutely messed up when I look at it in Opera. Plz fix it.

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About

"The Wealth Debate" is a running discussion of wealth, poverty, the economy and income inequality in the U.S. and the world. It was started shortly after the Occupy Wall Street movement sparked a global protest about the fallout from the financial crisis and money in politics. You can reach the editors, Dan Beucke and Mark Gimein, by email, or follow BloombergNow on Twitter to keep up with posts.

Analyses or commentary in this blog are the views of the author and or commentators, and do not necessarily reflect the views of Bloomberg News.

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