Groupon, Beware: Of 25 Hot IPOs, 20 Tanked Later – BusinessWeek
Groupon's IPO is expected to price today, likely creating a new cadre of insta-millionaires. 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 (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% from the offer price. But that only matters if you got an allocation at the offer price. And if you did, you would have been wise to sell right away anyway.