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Tech IPOs See Dim Days
By siliconindia
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Tuesday, 29 November 2011, 01:03 IST
Bangalore: Groupon, LinkedIn and Pandora Media. What is common between the three? All three were tech companies which debuted for the IPOs and what they saw in common was the fall of their shares after their first days close. The shares fell by 30 to 40 percent. Raises suspicion, are the dot com companies not able to survive the bullish share market? Is it only the hype that brings them to the golden doors? Or is it prudent for these companies to rush for IPOs?
Tech IPOs are on average trading 11.5 percent below their offering prices, while compared with a 5 percent decline in business and financial services IPOs, a 7 percent decline in real estate IPOs and a 8 percent decline in industrial and consumer product IPOs.
There have been some high-profile filings this year: Groupon, Zynga are among them. Less than three weeks after Groupon went public in a glittering debut, the daily deals site landed with a thud. Zynga will debut in December.
Shares of Groupon skidded for a second day, falling as much as 19 percent to hit $20.03 At that level, Groupon nearly fell below the price of its offering, which was set at $20 per share on Nov. 3. Groupon Inc raised $700 million after increasing the size of its initial public offering, becoming the largest IPO by a U.S. Internet company since Google Inc raised $1.7 billion in 2004. The global leader in "daily deals" is now valued at almost $13 billion after saying it increased the offering by 5 million shares to 35 million in total and pricing them at $20 each, above an initial range of $16 to $18.
LinkedIn Corp.s shares dropped to the lowest level in five months after its so-called lockup period ended, letting some early investors and employees sell the stock for the first time since the initial public offering.
LinkedIn, the biggest networking site for professionals, fell 2.8 percent to $70 in New York trading, reaching the lowest point since June 24.
Company insiders are typically forbidden from unloading shares for six months after an IPO, in part to keep sell orders from flooding the market. With the expiration of LinkedIns lockup period today, 6.1 million shares changed hands, more than three times the average daily volume over the past month. LinkedIn also sold just 9 percent of its shares. Though shares are down 30 percent from their first day's close, unlike Groupon and Pandora, they remain well above their IPO price.
Shares of Pandora Media, a popular but unprofitable online music service, made their New York Stock Exchange debut on Wednesday, ending the day up 8.9 percent, at $17.42, after rising as high as $26. It was a solid performance all the more so because it came on a day of a broad slump in the overall stock market. Yet the Pandora initial public offering paled in comparison to recent incandescent Internet IPOs.
Online radio firm Pandora Media has fared little better. It sold just 9 percent of its outstanding shares on its IPO, and is now down 34 percent from its initial public offer price.
Investors always get carried away with the hype that is given to these companies. But data shows that hype-driven momentum fades soon enough. So the gains that were fleetingly available on the hottest tech IPOs evaporated quickly. Tech IPOs make their gains on the first day of the IPO openings and then are hitting dust with no margins of profit. In fact most of them have hit less than their opening value. Although LinkedIn and Qihoo were exceptional by reaching double stock prices on the opening day were not able to maintain the consistency.