Hot IPO, SNAP, Comes Out. Time to Buy?

“Hot” IPOs like Alibaba, Twitter and Facebook are usually very emotional, much anticipated and huge financial media events.  Investors clamor for these stocks, usually throwing caution to the wind as fundamentals are trampled by greed. The media are usually camped out at the NYSE or NASDAQ with minute by minute updates as to where the stock may open.

As I have discussed over and over, emotion in investing can have a very detrimental impact on your portfolio! That’s one of the reasons I have always had a tough time advising people to buy a hot IPO on its first day of trading. My theory has always been that if a company is as good as advertised, there will be plenty of time to buy it down the road once it stabilizes, even if that means at higher prices. Of course, that strategy is irrelevant to those who just want to trade the stock for short-term gains.
With Snap (millennial social media dynamo Snapchat) coming public today, I went back and found similar, much anticipated, “hot” IPOs to show you what transpired over the coming few months. The term “hot” is subjective and I tried not to cherry pick the list, however, I am sure others can argue for inclusion of more companies. This research has absolutely nothing to do with the fundamentals of Snap, which definitely concern me, even though my daughter let me know that this is a must have app for all millennials.

With all that said, let’s take a walk down hot, tech IPO memory lane.

Square came public at the end of 2015 as stocks were trying to recover from their summer swoon. After a wild first day which saw Square’s high for the next five months, the stock traded as low as $8 before doubling. Patience was rewarded, my long-term theme.
Alibaba was the largest U.S. IPO of all-time, coming public in September 2014 to huge fanfare and expectations. I don’t recall an IPO ever getting that much media attention. I surmise that the vast majority of individual investors never heard of Alibaba until the days leading up to the offering. After another wild first day, the stock pulled back 15% for a few weeks before uncharacteristically soaring to its all-time high two months later. However, as we have seen time and time again, buying strength in IPOs was not a rewarding long-term strategy as the stock was subsequently cut in half before double bottoming in September 2015.
Twitter, another hugely popular and much anticipated IPO, also bucked the trend over the past few years. While it initially dropped 20% from its $50 first day high, that set off a very powerful rally of almost 100% to $75 before seeing the customary 60% IPO collapse to $30. End result: investors were mostly better off waiting than buying right away.

Facebook may have been the most high profile IPO since Google and had all kinds of problems right out of the gate. Talk about the epitome of what not to do! Here is one piece I did. (http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120525.pdf) As you can see, it was almost straight downhill, 60%, for four months before THE bottom was hit at $18. End result: investors were absolutely better off waiting than buying right away. Patience was rewarded.

LinkedIN is next and similar to Facebook, there was immediate and significant weakness before a good low was seen. End result: It was basically a toss up.
Just like with LinkedIN, Groupon experienced the ole buyer’s remorse right from the start with the first meaningful trough coming about a month later. End result: investors were better off waiting than buying right away.
Yelp bucked the trend somewhat with only a shallow initial pullback, but the stock didn’t escape the carnage as you can see over the first three months. End result: investors were better off waiting than buying right away. Patience was rewarded.
Zynga was just like the others with an immediate month long decline to a good trading low. End result: investors were better off buying sooner than later.
I added Google as it was before the financial crisis as well as arguably the hottest and most anticipated IPO of all-time or perhaps since Microsoft and Apple in the 1980s. This is certainly not a social media company like the others. It was also during a very different investing climate back in 2005 with vastly different results. It does not belong in the group above, but I figured I would answer the question before it was asked. End result: investors were rewarded almost immediately. The stock never returned to its first day’s or week’s range.
The moral of the story is that most of the time, investors are rewarded by having patience with hot IPOs. Personally, I would rather be late and pay up than be early and lose a lot of money.

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Alibaba, Twitter and Facebook Oh My!

“Hot” IPOs like Alibaba, Twitter and Facebook are usually very emotional, much anticipated and huge financial media events.  As I have discussed over and over, emotion in investing can have a very detrimental impact on your portfolio! I went back and found similar, much anticipated, “hot” IPOs to show you what transpired over the coming few months. The results should not be surprising.

Twitter really bucked the trend over the past few years. While it initially dropped 20% from its $50 first day high, that set off a very powerful rally of almost 100% to $75 before seeing the customary 60% IPO collapse to $30. End result: investors were mostly better off waiting than buying right away.

twtr

 

Facebook had all kinds of problems right out of the gate and you are welcome to search the archives on the blog for my very opinionated view. As you can see, it was almost straight downhill for four months before THE bottom was hit. End result: investors were absolutely better off waiting than buying right away.

fb

LinkedIN is next and similar to Facebook, there was immediate and significant weakness before a good low was seen. End result: It was basically a toss up.

lnkd

Just like with LinkedIN, Groupon experienced the ole buyer’s remorse right from the start with the first meaningful trough coming about a month later. End result: investors were better off waiting than buying right away.

grpn

Yelp bucked the trend somewhat with only a shallow initial pullback, but the stock didn’t escape the carnage as you can over the first three months. End result: investors were better off waiting than buying right away.

yelp

Zynga was just like the others with an immediate month long decline to a good trading low. End result: investors were better off buying sooner than later.

znga

Google is below and this is certainly not a social media company like the others. But at the time, it was an incredibly hot IPO. It was also during a very different investing climate back in 2005 with vastly different results. It does not belong in the group above, but I figured I would answer the question before it was asked. End result: investors were rewarded almost immediately.

goog

The moral of the story is that most times, investors are rewarded by having patience with hot IPOs. Personally, I would rather be late and pay up than be early and lose a lot of money.

If you would like to be notified by email when a new post is made here, please sign up, HERE.

More on Twitter

I have pretty much beaten the proverbial dead horse with my comments on Twitter, but as I look back, they were nowhere near as much as when Facebook went public.  Below is another TV interview where I look particularly good. I can say that because they interviewed me over the phone!

http://video.foxbusiness.com/v/2816611949001/twitter-hype-overblown/

Twitter, the stock, is in an interesting spot right here. It looks like it wants to rally in the short-term, but because the line in the sand is so close, the risk is easily defined and not too severe for the more aggressive trader.

Twitter & How to Play Hot IPOs

Last week, Twitter began trading in one of most highly anticipated IPOs in years, very similar to Facebook. You can view my very negative initial comments here. http://investfortomorrowblog.com/archives/826.

“Hot” IPOs like Twitter and Facebook are usually very emotional and as I have discussed over and over, emotion in investing can have a very detrimental impact on your portfolio! I went back and found similar IPOs to show you what transpired over the coming few months. The results should not be surprising.

Facebook had all kinds of problems right out of the gate and you are welcome to search the archives on the blog for my very opinionated view. As you can see, it was almost straight downhill for four months before THE bottom was hit.

fb

LinkedIN is next and similar to Facebook, there was immediate and significant weakness before a good low was seen.

lnkd

Just like with LinkedIN, Groupon experienced the ole buyer’s remorse right from the start with the first meaningful trough coming about a month later.

grpn

Yelp bucked the trend somewhat with only a shallow initial pullback, but the stock didn’t escape the carnage as you can over the first three months.

yelp

Zynga was just like the others with an immediate month long decline to a good trading low.

znga

Google is below and this is certainly not a social media company like the others. But at the time, it was an incredibly hot IPO. It was also during a very different investing climate back in 2005 with vastly different results. It does not belong in the group above, but I figured I would answer the question before it was asked.

goog

The moral of the story is that most times, investors are rewarded by having patience with hot IPOs. Personally, I would rather be late and pay up than be early and lose a lot of money.

Shareholder Suit Plagues Facebook IPO

http://nhregister.com/articles/2012/05/23/news/doc4fbdaeef4f252625135824.txt?viewmode=fullstory

The Facebook Fiasco… A Guide of How NOT to IPO

Here is the latest Street$marts with a detailed article on the bust that is Facebook.

http://www.investfortomorrow.com/newsletter/CurrentStreet$marts20120525.pdf

CNBC’s Closing Bell TODAY at 4:10pm

I am going to be on with Maria and Bill at 4:10pm today discussing ethics versus business on Wall Street in the face of Facebook’s epic bust.  Now that should make for interesting conversation!

Facebook, Facebook, Facebook

Is the world so boring a place that unless we can beat a story stock to death, there is nothing else to report?  Have we forgotten about the need to create jobs in the private sector? 

First it was Apple; then it was JP Morgan; and now it’s Facebook.  Thankfully, the IPO is over, Mark Zuckerberg is now worth $19B and the markets have created thousands of new paper millionaires.  It also means that in a few weeks, the buzz about Facebook should die down. 

For full disclosure, I am not an IPO investor and never have been.  I think there is too much risk and too much volatility.  For every huge success, there are dozens, hundreds or even thousands of busts.  Sure, folks can point to Apple, Microsoft and Google, but in each case, by waiting and possibly paying a higher price, you could have reduced risk and volatility, and more importantly, gave yourself better odds at winning by making sure the company wasn’t the latest flash in the pan, like At Home.com, Krispy Kreme and Boston Chicken.

All huge IPOs seem like can’t misses.  Is Facebook a good investment?  A good company?  Over the long-term, I have no idea at this point.  Time will tell.  But what we do know in the short-term is that insiders sold an awful lot of stock at a rich valuation that was increased over the past month with the likelihood of much more over the coming months and years.  The word “greed” enters into my mind!

Right now, Facebook dominates the social media space.  Zuckerberg built a monster as a private company.  That has all changed.  He and the company will now be in the public spotlight like no freshly public company has ever been. The pressure from Wall Street, the media and investors is going to be enormous.  

Here is an article I was quoted in over the weekend about the IPO. 
http://www.investmentnews.com/article/20120520/REG/305209975

Fast forward a few days to May 21, we now see that the IPO is basically a bust in my opinion.  The underwriters, led by Morgan Stanley, had to commit millions of dollars of their own money on Friday to support the IPO price of $38.  The NASDAQ completely bungled the most high profile IPO since Google, if not ever, with system problems on Friday.  And today, Monday, with a very strong technology market, Facebook closed down more than 10%.  I imagine investors are shellshocked, dumdfounded and pretty angry overall.  Anything but this was expected.  To have the stock close below the offering price at all, let alone on day two is beyond unbelievable!

How happy are the institutions who bought at $38 on Friday?  Given the litigous nature of our country, I have a feeling that we will be seeing some class action lawsuits on the way.

As always, Caveat Emptor!