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