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Is the IPO Market Headed Right Back to 1999 All Over Again?

Sean Williams
February 8, 2012

1999 was an interesting year to be an investor to say the least. 486 companies went public with eight logging gains of greater than 350% on their first day of trading. As we learned years later, these valuations simply weren't sustainable, and many of these companies either perished or are nowhere near where they once were.

Here's a quick "where are they now" on 1999's top IPOs:

Company IPO Price First Day Close Percentage Gain Where Are They Now? Change Since First Day Close
Foundry Networks $25 $156.25 525% Purchased in 2008 for $19.75/share N/M
Cobalt Networks $22 $128.13 482% Purchased in 2000 for $57/share N/M $17 $97.50 474% Purchased in 2005 for $18/share N/M
Akamai Technologies $26 $145.19 458% $33.64 (77%)
Sycamore Networks $38 $184.75 386% $19.85* (94%)
Ask Jeeves $14 $64.94 364% purchased in 2005 for $33.46/share N/M
Finisar $19 $86.88 357% $21.59** (91%)

Source: Yahoo! Finance, Hoover's, *Accounts for 1-for-10 reverse split, **Accounts for 1-for-8 reverse split, N/M = not meaningful.

That isn't a pretty list. Shareholders of Cobalt Networks should consider themselves lucky to have received $2 billion for their stock when purchased by Sun Microsystems in 2000 because all of Cobalt's products were retired by Sun just three years later. The remaining companies on this list faired very poorly, as you can see.

The question I pose is this: Have IPO investors really learned anything since 1999? I'm not inclined to think so.

Take a look at last year's class of Internet IPOs and tell me if you notice a trend. Also, keep in mind as a comparison that the average S&P 500 company trades closer to two times book value and seven times cash flow.



Forward P/E

Price/Cash Flow

Pandora Media (NYSE: P  ) 21.5 864 648
Renren (NYSE: RENN  ) 1.6 N/M 22.8
Zynga (Nasdaq: ZNGA  ) 14.5 103 35.8
Tudou Holdings (Nasdaq: TUDO  ) 2.5 N/M N/M
LinkedIn (NYSE: LNKD  ) 19.7 157.2 88.7

Source: Morningstar, N/M = not meaningful

As far as I'm concerned, we haven't learned a darn thing and are right ba