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Volatility Killed the IPO Star

Worries over a global slowdown, exacerbated by Greece's debt issues and slower growth in the United States, aren't just hurting your portfolio -- they're killing the IPO market, too. Then again, the IPO market wasn't exactly on sound footing before the worries over Greece escalated.

Source: MSN Money.

The IPO market has turned into a destitute wasteland, with no new offerings since Toudou Holdings (Nasdaq: TUDO  ) began trading all the way back on Aug. 17. And for all the reasons we could be witnessing a slowdown in IPO activity, none of them bodes well for a recovery anytime soon.

Volatility killed the IPO Star
You might think volatility would be a new stock's best friend, given that many new IPOs have chosen to float only a small percentage of shares in an attempt to maximize their chances of rocketing higher on their debut dates. But volatility often quells investors' appetites for the unknown. Remember, too, that companies that go public have often been in business for years and never had to report their financial results. Unknown results often lead to worry, and worry is never a good thing -- especially in this market environment.

There's no excitement
Also working against the IPO market is a lack of anticipation of new issues. Facebook recently said it has pushed back plans to go public until possibly late 2012 so it can instead focus on its corporate strategy. In August, many companies, including Invensense and HomeStreet, postponed their original plans to go public as well. Sure, the market is abuzz about the potential IPOs of Groupon and Zynga, but even they could cave to mounting worries and choose to launch at a more opportune time.

When it rains, it pours
Monkey see, monkey do -- and right now the monkeys don't want to issue their stock to the public, if the past six months is any indication of what their future performance might be. The vast majority of the 62 IPOs to have launched since April 1 are trading below their offering prices. Even worse, check out the performance of these highly anticipated names since their closing price on the first day of trading:


Closing Price on First Day

Closing Price 10/06/11


LinkedIn (NYSE: LNKD  )




Renren (NYSE: RENN  )




Yandex (Nasdaq: YNDX  )




Zillow (Nasdaq: Z  )




Teavana (NYSE: TEA  )




Solazyme (Nasdaq: SZYM  )




Sources: MSN Money, Yahoo! Finance.
 If I were Facebook, Groupon, or Zynga, these figures would be more than enough to get me to sit on my hands.

Foolish roundup
I almost feel sorry for the companies that went public earlier this year, because volatility and uncertainty are lining up like a one-two punch to knock them out. I'm not looking for the IPO market to improve anytime soon, and neither should investors expect those dream-like pops that we witnessed earlier in the year.

What's your take on the IPO market? Share your thoughts in the comments section below and consider adding these highly followed IPOs to your Watchlist to keep track of the latest breaking news with each company: LinkedIn, Renren, Yandex, Zillow, Teavana, and Solazyme.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Solazyme. Motley Fool newsletter services have recommended buying shares of Zillow. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that’s always open to the public.

Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 07, 2011, at 4:50 PM, TheDumbMoney wrote:

    I have my eye on Teavana, Linkdin and Solazyme, and if we get a real crash I might do a little dumpster diving.

  • Report this Comment On October 13, 2011, at 3:21 PM, g89 wrote:

    Part of the IPO story not getting much coverage is the very small number of shares in the IPOs and the role that plays. The large movements these stocks make during the first several months after the IPO smells a lot like someone or a group of someones manipulating the stock.

    The share price quickly shoots up and then goes straight down, only to bottom out quickly and shoot straight back up. Its very difficult to believe that retail investors, mutual funds, and pensions are the cause. Whether its hedge funds or the investment banks themselves, it looks like blatant manipulation. So far, there is not the least hint that the SEC has even done any investigating. They are either completely incompetent (Bernie Madoff comes to mind here) or big institutions are somehow exempt from playing by certain rules. Whatever the case, there is a reason that Wall St. donates so much money to politicians.

    IMHO, retail investors should avoid these IPO stocks like the plague.

  • Report this Comment On October 19, 2011, at 8:37 PM, constructive wrote:

    You are mistaken. These rapid declines are NOT volatility, they are a permanent loss of value. They are entirely to be expected when you take a poor company public at a wildly inflated price.

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