Tech IPOs start with a strong pop, and then promptly tank

Tech companies have the tendency to collapse after their strong stock market debuts. Photo: Donna Barber

Shares of Groupon soared to $26.11 on its first day of trading as a public company, a very healthy (and somewhat surprising) 30 percent pop. But fast-forward to today, and things look very different for the operator of daily deals. Groupon is now trading at $18.95, below its $20 offering price from November 4th.

And Groupon is not alone. On average, every tech company that’s gone public in 2011 has started off strong and then promptly been on a downward path, notes Daniel Hom, a data analyst at Tableau Software who put together the interactive chart below. (Previously on GeekWire: Tech: The worst IPOs of 2011)

It’s not a total surprise that tech companies often falter after their first few days in the market. In fact, even Seattle-based Zillow — one of the best performing IPOs of 2011 — has seen its shares sink back to Earth in recent days.

That’s being driven in part by an accelerated expiration of the lock-up period for Zillow insiders who were able to start selling off a chunk of their stock in late November. Shares have fallen more than 18 percent in the past two weeks since the lock-up expired. The stock, which closed Friday at $22.06, is still above the $20 offering price.

But many recent tech IPOs aren’t faring that well. In fact, Hom’s analysis finds that just seven companies (including LinkedIn, Zillow and Fusion-io) are in positive territory.

The first-day pop phenomenon is certainly worth investigating, especially in light of recent stories about Zynga and Facebook considering IPOs.

What do you think? Do you purchase shares of tech IPOs or stay away from them like the plague?

Check out the graphic here:

  • Dave

    The fascination with tech IPO performance in the few days or weeks after pricing has always been baffling. The playbook is relatively well understood to get good performance in that period…float a small % of outstanding shares for a thin float and an appearance of scarcity, take a hyped company and build more hype during the roadshow, sell the shares for an enterprise value that gives room to move up, then watch the price move up. IPOs in general, and tech IPOs in particular, cannot be evaluated until 9-12 months after pricing. The lockups need to come off, insiders need to start to selling shares, maybe have a follow-on offering before you know the IPO was a good one. 

  • Booooomer

    Led by Groupon, most IPO’s that fail have one thing in common: NO SUSTAINABLE COMPETITIVE ADVANTAGE, and that can easily be deduced before investing……..and even before start-up.

  • Guest

    What Dave said.

  • 098432409832

    facebook will be the biggest tank of all