It hasn't been a particularly good year for IPOs. Of the 116 companies that Nasdaq's IPO website lists as having gone public in 2011 through Nov. 18, only 25 were in the black by the end of Black Friday. The average return of all IPOs, measured with closing prices at the end of their first days as public companies, is a loss of 20%. The Dow Jones Industrial Average (INDEX: ^DJI) , on the other hand, has only lost 3% over the same period.
Of course, in every freshman class there are likely to be brilliant scholars, hopeless dunces, and a wide range of hopefuls in between. Today, in the first of a four-part series on the IPO class of 2011, we'll take a look at five dunces to see how their poor performance can encourage us to invest smarter next year.
Breaking out the bad
One problem with ranking IPOs is that the "official" IPO price isn't available to ordinary investors like you and me. It would be absurd to rate LinkedIn (NYS: LNKD) based on its IPO price of $45 when its stock opened its first day at $83 and closed at $94.25. For those lucky few that got shares at $45, LinkedIn is still a winner -- but all the investors who jumped in on the first public day have lost a substantial amount. In the interest of realism, all companies rated here are measured from the close of their first day onward. I also restricted eligibility by market cap, with only companies currently valued at more than $500 million making the cut.
First-Day Closing Price
Most Recent Closing Price
Change from First-Day Close
Yandex (NAS: YNDX)
21Vianet (NAS: VNET)
Qihoo 360 (NYS: QIHU)
Demand Media (NYS: DMD)
Renren (NYS: RENN)
Sources: IPO Scoop and Yahoo! Finance.
In Soviet Russia, IPO prices you!
Yandex had a nice pop, but even its early investors are underwater -- the stock slipped under its initial $25 pricing nearly two months ago, and hasn't done much since. Longtime Fool contributor Rick Munarriz thinks the Russian search engine can bounce back, despite disappointing guidance, thanks to its dominant market position. It's recently teamed up with Windows Phone manufacturers to make itself the default search engine on new phones released in Russia. Now, if Windows Phone can somehow become the default Russian mobile OS, Yandex might be onto something.
How do you say "cloud computing" in Chinese?
It's not been a good year for most Chinese Internet stocks. 21Vianet had the disadvantage of going public as a money-losing enterprise, and its third-quarter positive swing didn't do anything to stem the decline. Whether investors are worried about its profitability, the specter of Chinese fraud allegations, or the company's overreliance on major telecoms for bandwidth, this Chinese data-services provider has a major image problem.
However, 21Vianet might be one to watch. Much of the company's losses have stemmed from massive marketing expenditures that could eventually start winding down. The interplay between its data services and those run by its bandwidth providers, China Unicom and China Telecom, will be a key story line in 2012.
Qihoo adds to the Chinese failure trifecta that began with 21Vianet. Dubbed "the most overvalued and misunderstood Chinese Internet stock" by Citron Research, the software security company didn't lie back and take the beating. Its rebuttal, linked in the prior sentence, was feisty without a whole lot of facts. Qihoo's revenue is tiny compared to its market cap, although its quarter-over-quarter growth is quite impressive. However, does trailing-12-month revenue of around $125 million justify even its current valuation of nearly $2 billion? So far, the market's said no.
Not so much demand now
I'm a big fan of Demand Media's Cracked.com comedy site. The company also offers health and fitness advice through Livestrong.com and other brands, as well as how-to tutorials on eHow.com. However, the popularity of its sites and the strength of its marketing strategies haven't yet translated to profitability. Its quarterly revenue has been largely flat throughout 2011, which isn't a great indicator of future growth for an online property. Demand will need to do better than fart jokes and diet plans to convince investors that it wasn't extremely overpriced in its public debut.
Ren ran out
Being the Facebook of China doesn't mean much if you don't make Facebook money, and Renren's lack of profitability makes it seem more like China's Myspace. What's worse, Chinese regulators might have the social-networking portal in their sights. The company's fallen nearly 80% and still somehow commands a $1.45 billion valuation. Currently trading at 17.5 times trailing-year sales, Renren has been priced as the next big thing since its IPO. For its investors, it's been nothing but the next big bust.
Stay tuned for this year's standouts tomorrow, as well as IPOs with great potential and some companies that just got too much hype. If you'd like the inside scoop on 2011's hottest IPO, take a look at the Motley Fool's free report. It's an even better deal now than it was when it went public.
At the time thisarticle was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter for more news and insights. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.