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.)


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.)

Related Articles
  1. Stock Analysis

    If You Had Invested Right After Costco's IPO

    Find out how much your investment would be worth if you had invested $1,000 during Costco's IPO and how much you would have received in dividends.
  2. Stock Analysis

    If You Had Invested Right After Kraft's IPO

    Discover the complicated history of the Kraft Heinz Company and how much an investment in its initial public offering in 2001 would be worth today.
  3. Stock Analysis

    If You Had Invested Right After Coca-Cola's IPO

    Discover how one $40 share, with dividend reinvestment, over 90 years ago in the Coca-Cola Company would have made you a multimillionaire today.
  4. Stock Analysis

    If You Had Invested Right After Cisco's IPO

    Discover how Cisco became one of the greatest IPOs in history during the 1990s and how it continues to innovate and move forward today.
  5. Stock Analysis

    If You Had Invested Right After Amgen's IPO

    Discover how $1,000 invested in Amgen during its initial public offering (IPO), without reinvesting dividends, would be worth over $427,000 as of November 2015.
  6. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  7. Active Trading

    10 Steps To Building A Winning Trading Plan

    It's impossible to avoid disaster without trading rules - make sure you know how to devise them for yourself.
  8. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  9. Stock Analysis

    Match.com IPO: Is it a 'Buy' or Should You Pass?

    Demand for relationships is always high. Now you will have a way to directly invest in the relationship market. But is it priced fairly?
  10. Options & Futures

    Terrorism's Effects on Wall Street

    Terrorist activity tends to have a negative impact on the markets, but just how much? Find out how to take cover.
  1. When did Facebook go public?

    Facebook, Inc. (NASDAQ: FB) went public with its initial public offering (IPO) on May 18, 2012. With a peak market capitalization ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. What kind of assets can be traded on a secondary market?

    Virtually all types of financial assets and investing instruments are traded on secondary markets, including stocks, bonds, ... Read Full Answer >>
  4. Why would a company decide to utilize H-shares over A-shares in its IPO?

    A company would decide to utilize H shares over A shares in its initial public offering (IPO) if that company believes it ... Read Full Answer >>
  5. How do I place a buy limit order if I want to buy a stock during an initial public ...

    During an initial public offering, or IPO, a trader may place a buy limit order by choosing "Buy" and "Limit" in the order ... Read Full Answer >>
  6. How do corporate actions affect floating stock?

    Corporate actions, defined as a company's actions that affect the amount of outstanding company stock shares, can either ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center