A slew of lousy economic news in recent months that has sent the stock markets on a bumpy ride is now rocking the timing of several highly anticipated technology/social media IPOs.
Initial public offerings and market volatility are like oil and water -- they dont go well together.
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The mother-of-all social media IPOs, Facebook, is delaying its hugely anticipated offering, according to a report Wednesday in The Financial Times, and analysts say they wont be surprised if other members of Facebooks class -- Zynga and Groupon, for instance -- make the same decision.
With the market being so volatile its going to hold off some of the key deals in the U.S. market going forward. Some candidates will delay their IPOs because they wont get a reasonable price. The IPO market doesnt like volatility, its very risky, said Josef Schuster, chief executive and founder of IPOX Schuster, a Chicago-based research firm.
During the first half of 2011 the IPO market was rebounding from a dismal two-year stretch in the wake of the financial crisis of 2008 and the ensuing recession.
Indeed, during the second quarter 90 companies filed papers with the Securities and Exchange Commission to take their shares public, the highest quarterly figure in almost four years, according to Renaissance Capital, an IPO research firm in Greenwich, Conn.
That rush of filings has allowed the IPO pipeline, or companies that have filed but havent yet started trading, to balloon to 202 potential deals, a 20% increase from the same period last year, Renaissance Capital reports.
But Augusts market swoon following Standard & Poors downgrade of the U.S. credit rating and an escalation of Europes debt crisis is clearly taking its toll: 21 companies withdrew their IPO filings in August, bringing the total number of 2011 withdrawals to 46.
Whats more, Dow Jones Newswires on Wednesday, citing data firm Dealogic, reported that 63% of U.S. IPOs completed in 2011 are currently trading below their initial offering price, or under water in Wall Street jargon.
Schuster said companies such as Facebook, Groupon, Zynga and Twitter, all of them projected to debut in huge, high-priced deals, are likely spooked by the poor performances of other large deals that have debuted in the past year, including General Motors (NYSE:GM), HCA Holdings (NYSE:HCA) and Freescale Semiconductor (NYSE:FSL).
The shares of all three are down considerably from their IPO prices: GM priced in November at $33 and was trading Thursday at $22.60; hospital operator HCA Holdings priced in March at $30 and was trading Thursday at $20.60; and Freescale priced at $18 in and was trading at $13.22 Thursday.
That has definitely dampened the appetite toward large deals, said Schuster.
Its a mixed bag for the rest of 2011s newcomers. A handful of tech companies that debuted ahead of the August slump continue to more than hold their own.
Social media company LinkedIn (NYSE:LNKD), often referred to as a Facebook for professionals, jumped out to a spectacular start in May, rising more than 100% above its $45 IPO price. Its shares were trading at $88 on Thursday. A couple of lower profile Internet-related deals from real estate Web site Zillow (NYSE:Z) and Chinese web security Qihoo 360 Technology (NYSE:QIHU) have also turned out well for investors.
While the broad market instability brought on by concerns that the U.S. could well be headed into another recession will undoubtedly cast a pall over the IPO market, each deal has its own story.
Thats especially true in the technology sector, which, regardless of market conditions, is expected to generate the most demand among new issues investors over the next 12 months.
Consider Facebook, for instance. The social networking giants deal could well be the biggest IPO in history and CEO Jeff Zuckerberg has reportedly told company insiders that the delay until late 2012 isnt related to market volatility. Instead he wants to postpone the inevitable distraction the IPO will pose to his employees, many of whom are about to become very rich.
Groupon, the meteoric coupon company, temporarily delayed its IPO earlier this month and postponed a roadshow to promote its IPO. The delay was blamed on a combination of market skittishness and questions raised by the SEC about a memo sent by Groupon CEO Andrew Mason to company employees that might have violated securities laws.
But that matter has been settled, and on Wednesday the New York Times reported that three-year old Groupon, which has yet to turn a profit, could go public as early as next month. Still, people briefed on the matter told the Times that the timing could change if markets take a turn for the worse.
Zynga, just four-years-old, is another fast starter. The company, which publishes games on Facebook and other social media sites, is arguably the most successful so far to exploit the Facebooks immense popularity. The company is planning a $1 billion IPO sometime this fall but perhaps wisely -- hasnt been specific on a date. The company declined to respond to rumors late last month that it was postponing its IPO due to market volatility.
Groupon declined to comment on the timing of its IPO, citing the SEC mandated quiet period ahead of a stock deal, and Zynga did not immediately respond to a request for comment.