sikiliza (< 20)

2011 IPOs overdone? Not so fast

November 07, 2011 – Comments (0) | RELATED TICKERS: GRPN , LNKD , GOOG

So, Groupon had its much anticipated IPO last week and even managed to raise over $700 Million with just 5.5% of the float. Having reviewed the offering I wondered how this deal compared to not only other deals in the tech space lately but also to IPOs from the past i.e. Google, Baidu and VM Ware.

With this in mind I decided to do a quick review of the year's top technology IPOs and compared them to the top three IPOs from the past

The companies reviewed ranked in order of market cap at IPO were Groupon, Yandex, Renren, LinkedIn, Pandora and Zillow. I compared this to Google, Baidu and VM Ware

IPOs in 2011 so far have on average floated 47% more shares and a 10% higher float as a percentage of total shares outstanding than did comparable IPOs from the past.

At an average $570MM raised at IPO in 2011, that figure is 38% less than that of the average comparable IPO from the past which stands at $910MM.

Market Cap at IPO is 50% lower at an average of $5.7B in 2011 and the price pop on the first day is only 52% compared to an average 152% from past IPOs.

No IPO done in 2011 has managed to beat the S&P 500 index at the time of writing but GOOG, BIDU and VMW have beaten the S&P by an average 500% since their IPO debut.

At 5.5%, groupon's float is the lowest of all IPOs that have featured prominently this year which has in turn led to a highly inflated market cap which stood at $16.6B on the close of the first day. Google's market cap at the end of the first day of trading was $29B but the company was already highly profitable and providing everyone at the office with free food and treats.  

LinkedIn had the highest price appreciation on day 1, closing at $94.25, 109% above it's issue price of $45.00 which is however a tiny bump when you realize that Baidu jumped 354% on day 1, from $27 to $122.

The main difference between 2011 companies and the likes of Google, Baidu and VM Ware is that these companies have not proven that their business models are truly sustainable and a good number of them are not even profitable. As with other investors, my main concern lies with investing in a company that cannot sustain itself, more so in this economy, like Groupon.

At this point it does look like a waiting game and I would really be pained if I looked back in 5 years and realized that I was more skeptical than I should have been. Only time will tell.