Market Overview

Not Pretty: Looking Back at Some High-Profile 2011 IPOs


Over the last year, a number of high-profile companies completed public offerings on U.S. exchanges. While some of the deals worked out well for investors who were able to participate in them at the offering price, most of 2011's highly anticipated IPOs have tanked once they began trading freely. While some of the losses can be attributed to market conditions, investors also must ask themselves if they weren't duped into paying exorbitant prices due to hype.

It also would appear as if some of the companies and their investment banking partners did a very good job of timing the market. Many of these IPOs were completed in the early part of the summer near the market's peak. In any event, one has to wonder whether IPO investors will use a higher degree of caution in 2012 after being burned in 2011. Below, Benzinga looks at some of the year's trendy deals - many of which have left shareholders who didn't buy their stock at the IPO price underwater.

Groupon (NASDAQ: GRPN) - This was the grandaddy of 2011 IPOs. Although the deal was not the largest in terms of capital raised, it was the most anticipated, hyped, and highest valued company to go public. In November, the company sold $700 million worth of shares at a price of $20 apiece giving Groupon a valuation of $12.75 billion. While GRPN initially popped when it began trading on November 7, netting IPO participants a quick paper profit, the stock has been largely moving lower ever since.

The 52-week high in the name is at $31.14, but the stock dropped as low as $14.85 less than a month after going public. On Friday, GRPN shares have lost 4.49% and are trading at $20.42. This represents a 22% loss from where shares began trading on the NASDAQ, although investors who were able to buy at the $20 IPO price are sitting on a profit of $0.42 per share. All things considered, this deal has hardly been a blockbuster for investors thus far, but the company's investment bankers did quite well.

LinkedIn (NASDAQ: LNKD) - Back in May, when LNKD went public, it stirred memories of the dot com bubble. Shares soared as much as 171% above their $45 IPO price on May 19, hitting a high of $122.70 before closing its first day of trading with a 109% gain at $94.25. Watching the stock trade that day was absolutely ridiculous. Nothing like it had been seen since the early 2000s. Many market observers immediately began pointing to signs of a bubble in the social networking space, citing the outrageous valuation that was being given to LNKD.

The company was worth nearly $9 billion after its first day on the NASDAQ. Given the soaring stock price, it appeared that LNKD's investment bankers had screwed up in pricing the deal and underestimated just how much demand there was for a piece of the company. In time, however, it became apparent that the market's initial exuberance was way overdone.

Although the deal has still been quite profitable for investors who were allocated stock at the $45 IPO price, few others have made money. Shares have fallen 33% from their $94.25 close on that first day of trading and the stock is currently sitting at $63.00, giving the company a valuation of $6.08 billion.

Zynga (NYSE: ZNGA) - Zynga completed the most recent much-hyped IPO of 2011 and the largest deal, in terms of capital raised, of the year. The company raised $1 billion at a valuation of $7 billion. Shares were sold at $10 apiece to investors who were allocated at the IPO price. Unfortunately, ZNGA couldn't even manage a first day pop, as the stock fell 5% to $9.50 on December 16.

Unlike other deals which were completed earlier in 2011, and did manage impressive first day gains, the bottom hasn't fallen out of ZNGA shares - yet. On Friday, the stock is trading at $9.30. Nevertheless, many in Silicon Valley and on Wall Street view the company's IPO and subsequent performance as a disappointment. Surely, big institutional investors who were hoping to flip their IPO shares for fat profits on the first day of trading weren't too pleased to actually lose money and the bankers pushing the deal probably got an earful from their clients.

Zipcar (NASDAQ: ZIP) - Zipcar went public on April 14, 2011, raising $174 million. The deal priced at $18, and ZIP immediately popped once it began trading. Shares rose as much as 67% above the $18 IPO price on that first day and closed the session with a 56% gain at $28.00. It has been all downhill since, however, with the stock falling more than 54% as of Friday to $13.41.

Pretty much anyone and everyone who ever bought ZIP shares and is still holding onto them is sitting on a loss heading into 2012. While it might be a little unfair to label this deal a complete disaster, it hasn't exactly gone well. The stock is within striking distance of putting in a new 52-week low and has plunged more than 30% in just the last month alone.

Zillow (NASDAQ: Z) - This real-estate website went public on June 20, and like many of the other hot IPOs which hit the markets over the summer, shares initially skyrocketed. After selling 3.46 million shares at $20 per share, Z soared as much as 120% to $44 on the morning it first began trading. The stock closed the session at $35.77, notching a 79% first-day gain over the IPO price.

Like many other deals, the early hype hasn't held up. The stock has fallen more than 37% from its close on June 20, and currently trades at $22.42. In other words, big investors who were able to participate in the IPO are up $2.40 per share on their stakes, but everyone else has pretty much gotten screwed.

Pandora Media (NYSE: P) - This innovative music service completed its IPO on June 15. The deal was priced at $16 per share and raised $235 million. The stock closed its first day of trading at $17.42 and hit a 52-week high of $26.00 a few weeks later. The recent trajectory of the stock, however, has left plenty of investors holding the bag - for now. On Friday, P shares are trading at $10.00 apiece and have fallen more than 42% from where they closed on their first trading day. Needless to say, Pandora's IPO hasn't done much to garner the affection of Wall Street investors.

Bottom Line: - Most investors cannot buy shares in hot deals like these at the IPO price and are forced to buy stock on the open market if they want to invest in new companies going public. In 2011, this was a very bad decision in most cases. Hot new IPOs are great money-making ventures for Wall Street banks and their preferred clients who get allocated shares, but they can be disasters for individual investors. All too often, small investors are left holding the bag in these deals long after the bankers have collected their fees and big clients have flipped their shares into the initial pop. This doesn't mean that these companies don't have real long-term potential, because some of them do, but it is frequently advisable to wait awhile and let the hype settle down before investing in a newly public company. In 2011, this has been true in the vast majority of cases.

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