Timing is everything in life and in the markets, especially for initial public offerings (IPOs). Going public means issuing shares in a company for the first time and offering them for sale on a stock exchange such as the New York Stock Exchange or the Nasdaq. What often happens, but not always, is that the IPO stock price is bid up beyond its initial offer price. (To learn more about IPOs, check out How An IPO Is Valued.)
TUTORIAL: IPO Basics
Rise and Fall
LinkedIn shares doubled in price in one day on the New York Stock Exchange on its IPO. At its high on the day the stock was first traded, it climbed 171% above its issue price. Firms that issue IPOs hope the price of their shares rise, but few would expect such an unusual spike in the value of their equities. Typically, brokerage firms which underwrite the stock offered in the IPO expect a 15% increase over issue price.
It was not a good year generally for IPOs, with more than 50% of the issues launched in 2011 currently trading at less than their IPO price. When the market is too volatile and unpredictable, as it has been recently, several major firms which have planned IPOs have delayed their market offerings until market conditions stabilize. Some additional factors may also have influenced their decisions to postpone issuing stock. Beyond market volatility is the struggling U.S. economy, with slow, sporadic growth and an almost 10% unemployment rate. This combination of negative conditions is not thought to be conducive to IPOs. (For some IPOs, who did not do so well, read The Biggest IPO Flops.)
IPOs on Hold
Among the planned IPOs of notably large, well-capitalized companies now on hold are Groupon, Zynga and Facebook. Groupon, which operates nationwide, is the country's largest Internet coupon vendor and offers daily online discounts on a variety of goods and services in cooperation with local businesses like restaurants and travel agencies. One estimate of the anticipated valuation of the Groupon IPO pegged the stock value at $20 billion. With that immense potential, Groupon has not canceled its offering, but is instead watching the market for a more favorable time to go public.
An additional factor in the Groupon IPO delay was a request by the Securities and Exchange Commission for the firm to eliminate an accounting calculation in its IPO filing which, according to The Wall Street Journal, "painted a more robust picture of its [Groupon's] performance."
According to some investors, negative media coverage on this issue was also a factor in the IPO delay. A number of similar coupon deal firms have been established since Groupon was founded and they are becoming significant competitors. Groupon's recent losses may be attributable, at least in part, to the new competition. Still, the company's executives are watching for market conditions to calm down and provide a window for its IPO.
Zynga, a major online video game site, also delayed its IPO because of market volatility, and to respond to questions from the U.S. Securities and Exchange Commission (SEC) regarding how the firm measures users and bookings. Investors also reportedly questioned Zynga's potential given the volatility and uncertainty of the current market. Zynga's IPO was expected to bring in close to $1 billion.
Facebook, the colossal online social media firm, which also anticipated an IPO this year, recently announced it would delay going public until at least September, 2012. Estimates of Facebook's value range from $50 billion to $100 billion, and its IPO could be one of the biggest in market history.
The Bottom Line
Although more than half of this year's IPOs are trading for less than their offer prices (as of Sept. 15), several are still in the black, including the giant real estate site, Zillow, which traded above its IPO price and above its first day close as of Sept. 14. Small investors don't usually get a chance to buy IPOs on their day of issue, but investors can buy a potentially profitable stock in the immediate days after issuance while the stock is still being bought and sold vigorously as it trends upward. (For more on IPOs and where they are coming from, check out Top IPO Nations.)