Twitter is by far the coolest company to announce plans for an IPO this year, so a lot of individual investors are lining up to grab shares as if they were concert tickets about to sell out. But fans might do better sitting out the initial buying frenzy. In the last round of social media IPOs, it was the patient investors who made the most money – and who were least likely to lose their shirts.
YCharts looked at 18 social media IPOs from 2011 from the perspective of investors who had to buy their shares on the open market. (Unlike investment banks that can buy at the offer price.) Only seven of those 18 online sharing companies are trading higher today than they were the day they launched, and the winners and losers might surprise you. Here are a few tidbits we learned from looking at the Class of 2011 social media IPOs:
The most lucrative investments to date were at least 30% cheaper three to six months out of IPO.
The seven gainers, in order of total gains during their individual tenures, are: LinkedIn (LNKD), Zillow (NASDAQ:Z), Qihoo 360 Technology (QIHU), Pandora Media (NYSE:P), Angie’s List (ANGI), Bankrate (RATE) and Carbonite (CARB). LinkedIn, Zillow and Qihoo have tripled or nearly tripled investor money, which is a far, far better performance than that of the next four shares.
Yet all of those companies could have been purchased at significant discounts in the months that followed their IPOs. The three biggest gainers each recorded prices more than 30% below their first day trades at various points in 2011. The stock chart below shows only the trading in 2011, before any of them was a year old.
NYSE:QIHU data by YCharts
Angie’s List and Pandora Media shares also experienced significant drops early on. Bankrate and Carbonite experienced dips too, although not as pronounced. Below are their share prices in 2011.
NYSE:P data by YCharts
Of course, plenty of losers began their tumbles early in their lives. It was interesting, though, that the greatest ones had troughs of opportunity too.
The level of “success” of an IPO, as declared in the media after the first day of trading, gave little indication of future performance. (We suggest some actual investment research, as well: how're the companies, never mind the stocks, performing?)
LinkedIn’s IPO was touted as incredibly successful, and it ultimately was. Zynga’s (ZNGA) IPO was a big disappointment, and its shares still very much are; they’re down 68%.
Then again, Demand Media (DMD) rose 32% on first day trading. Renren’s (RENN) “spectacular” IPO sent its shares up 29% on the first day. Aside from the soft porn company FriendFinder Networks , Demand Media and Renren are the worst performers of the class. Their first day buyers are down 71% and 80% respectively. Actually, HomeAway (AWAY) was a successful IPO, as was Yandex (YNDX), 21Vianet (VNET), to name a few. They’re all down. Below is a sample.
NYSE:DMD data by YCharts
Social media investing is hot again.
Despite the doubts such iffy investments might have instilled in investors, social media shares are very hot stocks now. All but three of those 18 companies are recording year-to-date share price gains; six of them in the triple digits. Only Demand Media, Jive Software (JIVE) and FriendFinder have missed the rally. Beaten down companies like Groupon (GRPN), and tiny ones like Chinese company Phoenix New Media (FENG), are getting second chances. A couple of social media IPOs in 2012 are doing particularly well. Facebook (FB) is up a whopping 234% this year, and Yelp (YELP) is up 65%. The charts below show the 15 companies in the Class of 2011 that are up since January.
NASDAQ:GRPN data by YCharts
NYSE:LNKD data by YCharts
NASDAQ:ZNGA data by YCharts
Looks like someone got the timing right.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at firstname.lastname@example.org. Read the RIABiz profile of YCharts. You can also request a demonstration of YCharts Platinum.
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