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Have shares in a blockbuster IPO? Dump them, quick
INVESTORS lucky enough to secure shares in a big IPO and not be constrained by a lock-up would be advised to offload them immediately.
And if you're eyeing the next blockbuster like Xiaomi Corp, don't even bother.
I ran the numbers on more than 1,300 IPOs in the tech, media and telecoms (TMT) space over the past five years and found that while 81.3 per cent rose on day one, just 49.2 per cent continued to climb over the subsequent year.
With lock-up periods for pre-IPO and cornerstone investors generally expiring after six months, it's notable that between six months and one year post-listing is the real danger zone, with only 40 per cent of companies climbing in that timeframe.
And the bigger the offering, the worse it gets.
Of the top 20 IPOs by sale size, just six rose from the end of the first day's trading through to one year after debut. Eleven fell and three haven't been trading for one whole year yet, so I didn't count them.
Among the top 10 by offer size, only Auto Trader Group Plc climbed from debut close to the end of the first 12 months.
Foxconn Industrial Internet Co is the second-largest TMT offering behind Alibaba Group Holding Ltd, raising US$4.3 billion. It popped by the daily 44 per cent limit last month, but has since dropped. iQiyi Inc, the sixth largest, fell 13.6 per cent on its first day in March, tripled over the following 10 weeks and then slid to around 25 per cent below its June 20 peak.
Shareholders of Adyen NV, a Dutch payments processor, seem to be holding on to the stock in the belief that there's still upside after its 90 per cent jump on debut last month. Three weeks later, it has maintained that valuation.
History, however, is not on Adyen's side.
The negative correlation between size and returns is slightly more pronounced when using a metric called "market value upon listing", by which Adyen ranks ninth.
Of the 10 biggest companies by value on listing, zero climbed between the end of day one through to the end of the first year. Not one. Nada. The "best" performer was Twitter Inc, which jumped 73 per cent on its first day, only to slide 9 per cent over the next year. Both Alibaba and Snap Inc (up 44 per cent on debut) dropped 30 per cent in the subsequent period.
Of course, companies that IPO aren't destined to be share-market losers forever. The last five years have seen a bull run for the TMT sector; the MSCI World Information Technology Index is up 130 per cent. But investors determined to buy into new tech firms for the long haul would be best to wait at least a year for the IPO hangover to pass. BLOOMBERG