Daily Management Review

Snap's IPO’s Performance Could Be Haunted By Ghosts Of Past Tech Ipos


Snap's IPO’s Performance Could Be Haunted By Ghosts Of Past Tech Ipos
Even as history suggests investors shut out of the initial public offering would be better off waiting a bit to chase this unicorn on the open market, Snap Inc appears set to make a splash next week with the biggest tech stock debut since Facebook Inc.
According to a Reuters analysis of market performance, with 16 of them notching a hefty decline from their debut day closing price, globally, shares of most of the 25 largest technology IPOs have languished in their first 12 months on the public market.
Including nine of the 15 to raise at least $1 billion in their listings,14 of the 25 biggest fell in their first year among U.S. tech IPOs.
According to Thomson Reuters Deals Intelligence data, expected to be vaulted into the five largest global tech IPOs of all time, Snap is expected to raise between $2.8 billion and $3.2 billion. It is the company behind the popular Snapchat app. It would rank third on the U.S.-only list.
The deal is oversubscribed, meaning far more fund managers want a slice than can be accommodated, Thomson Reuters IFR reported on Friday and the company executives have been on the road for the last week meeting with potential investors. Potential IPO buyers appear to be seeing it as a vehicle to play a red-hot market for tech stocks, the leading sector so far in 2017 and seem willing to look past concerns about the company's governance and lack of profitability.
Still, one red flag for the largest tech IPO could be its track record.
With big stumbles among marquee names like Alibaba Group Holding Ltd and Facebook, ranked Nos. 1 and 2 respectively, the median year-one performance among the biggest tech debuts globally was a decline of 22.3 percent. And ranked as the No. 6 tech IPO of all time, World Online BV did not even survive a year. Before being bought by Italy’s Tiscali SpA, this Netherlands-based internet service provider raised $2.8 billion in March 2000 after which the company slid 68 percent.
A median decline of 17.2 percent in their first year was recorded by companies such as Palm Inc, Viasystems Group, Genuity and Infonet were the U.S. tech group, which suffered from the inclusion of notable casualties from the internet stock bust of the early 2000s.
And no exceptions to the rule are unicorns like Snap. Except Facebook that recovered a decline, in their first year post IPO listing, the last five tech names in the U.S. top 25 with a pre-IPO valuation north of $1 billion, Groupon Inc, Zynga Inc, Facebook, Twitter Inc and Fitbit Inc, all nosedived.
Performance did turn a corner after that dismal first year for some of the most prominent names on the list.
More than half its value in its first four months of trading was lost by Facebok which raised $16 billion in May 2012 only to have technical glitches mar its debut on Nasdaq.
Also back in the black, though barely, are Alibaba's shares, which rose more than 30 percent in their first month only to falter over most of the next two years.
However, with 14 of the top 25 lower, globally, many were still struggling five years later. A lowering of 35 percent 3was noted in the median performance for that group.