2014 proved to be the year of initial public offerings (IPOs). In America alone, 275 companies issued common class stock, the most since 2000 (when over 400 companies engaged in IPOs). Led by Chinese E-Commerce giant Alibaba (BABA), U.S. IPOs in 2014 raised over $85 billion in capital, an increase of more than 40% Y/Y compared to 2013. Alibaba alone raised a record-breaking $22 billion, besting both Facebook’s (FB) 2012 IPO ($16 billion) and Visa’s (V) 2008 IPO ($17.8 billion).
However, this crowded group of IPOs has not translated their booming public offering valuations into sustained stock market success. In 2014, the average IPO return was only 16%, which barely outpaced the S&P 500 (13%) and pailed in comparison to the average 2013 IPO return of 41%.
In particular, the 2014 tech sector was dragged down by a number of lackluster post-IPO performances, namely A10 Networks (ATEN) and COUPONS.com (COUP). Both of these companies skyrocketed during their initial public offerings; however, they have since mimicked the dismal performance patterns of other recent tech busts like Groupon (GRPN), Zynga (ZNGA), and Zulily (ZU). For the sake of future IPO investors, I will examine how these companies have failed to both generate shareholder returns and maintain their ludicrous valuations.
A10 Networks (ATEN): After pricing its initial public offering of common stock at $15 per share in March 2014, shares of A10 Networks experienced an immediate downturn. By early September, A10 shares had lost nearly half of their value (or 50%) and traded around $8. By September’s end, the shares abruptly dropped again, this time to just above $4. As of April 13th, A10 is worth $253 million and trades at $4.29.
Coupons.com (COUP): Coupons.com had a phenomenal first day of trading in March 2014; the company’s stock price nearly doubled from $16/share to $30/share by day’s end. However, between March and June, Coupons.com stock fell to a low of $16 (but later rebounded back to $30). Fortunately for investors, this rapid inversion negated immediate shareholder losses, but also ensured long-term price stagnation. Since June 2014, Coupons.com stock has, for the most part, continued to fall. This trend lasted until February 2015, at which point shares of the company bottomed at $9.48. As of March 2015, Coupons.com stock has risen and is now trading at $13.45/share. The company’s market cap is currently $1.11 billion.
Groupon (GRPN): In November of 2011, Groupon raised 30% more capital than analysts had expected. By the end of Groupon’s first trading day, the company was valued at over $12 billion. As FY 2011 ended, and Q1 2012 emerged, Groupon stock experienced tremendous volatility, frequently trading between the mid-teens and mid-twenties (often hovering around the $20 IPO price). However, by the end of March 2012, Groupon shares encountered a disastrous pullback. During November 2012, Groupon shares bottomed at a mere $2.76 per share. Now Groupon stock trades at $7.29 and maintains a $4.9 billion market cap.
Zynga (ZNGA): In what was the biggest U.S. Internet IPO since Google (GOOGL), Zynga reached an outrageous $8.9 billion valuation in December of 2011. However, unlike the aforementioned companies, Zynga’s stock price stagnated during its IPO, failing to move far beyond its initial price of $10/share. Nevertheless, by the end of February 2012, Zynga shares had rallied to a high of roughly $14. However, Zynga stock soon began to collapse. In what TIME Magazine dubbed a “tech bloodbath,” Zynga shares fell 40% on a single trading day (July 26, 2012). By the end of 2012, Zynga shares had shed 75% of their value; the stock has since failed to recover and currently trades at a laughable $2.47/share, with a market cap of $2.25 billion.
Zulily (ZU): Shares of E-Commerce company Zulily jumped on the first day of trading, increasing in price by an astonishing 92% (from $22/share to $37.52/share). The stock continued its momentous success into 2014, when it again skyrocketed from $40/share to more than $68/share. However, Zulily’s success was short-lived. In March 2014, Zulily shares began a yearlong collapse that has yet to reverse. Now trading at $14.31/share, Zulily’s stock price has lost 80% of its value; the company maintains a market cap of $1.79 billion.
It is important for investors to note that aside from Zulily, none of these companies were actually profitable at the time of their respective IPOs. Moreover, their hefty valuations created unreasonable growth expectations. Similarly, each company’s downturn(s) coincides with their quarterly earnings reports. As A10 Networks, Coupons.com, Groupon, Zynga, and Zulily continued to miss revenue and earnings estimates (and simultaneously lower guidance), investors realized that these IPOs were based on hype, not fundamentals. In turn, traders engaged in massive selloffs to recoup what little money remained.