Twenty years ago, initial public offerings were all the rage, with a record 845 companies going public in the U.S. in 1996, including teen retailer Abercrombie & Fitch, commercial real estate giant CBRE Group, and internet portal Yahoo!.
The market's appetite for IPOs has abated considerably since those go-go days, and 2015 saw just 152 IPOs worth a total of $25.2 billion. That was substantially fewer than the prior year, when 244 companies went public at a collective initial valuation of $74.4 billion. (The number of IPOs in 2016 is on track to be even lower.)
IPO investing is exciting, because stocks will often (though definitely not always) soar when they hit the market. However, it's usually not a good decision to invest in these companies at the outset. Google's stock may have sprinted out of the gate when it went public more than a decade ago, but more often than not a company performs poorly for the first year or so. Facebook famously lost 30% of its value in its first year on the market.
There are a few reasons for that, such as the lock-up period that prevents insiders from selling their shares for a length of time -- usually 90 days, but as long as two years. On top of that, initial offerings are often overpriced, and the odds are largely stacked against small investors, as money managers and institutional investors have already gotten in early. In general, investors should steer clear of IPOs, or at least think twice before investing in them.
If you do invest in an IPO, however, don't think about it as a chance to make a quick buck. Instead, have a long-term outlook, just as you should with every investment you make. With that in mind, let's take a look at the 10 biggest IPOs of 2015 and see how they're doing one year (or so) later.
10. EQT GP Holdings
EQT GP Holdings (NYSE: EQGP) is the general partner owner of EQT Midstream Partners, which owns and operates interstate pipelines and gathering lines primarily serving the Marcellus shale region. Offered at $27 per share on May 12, 2015, EQT GP raised $621 million at its IPO. Since going public, however, with natural gas pricing weak, EQT GP's stock has fallen 13%. The U.S Energy Information Agency says the polar vortex helped prices rise in the Northeast, but they fell everywhere else.
Credit reporting agency Transunion (NYSE: TRU) went public in June 2015, raising $664.8 million from an offering price of $22.50 per share. Maintaining a proprietary database with files on over 1 billion consumers, and providing businesses with access to it and tools to exploit it, has helped its stock gain 39% since the IPO. With a business model that features highly recurring and diversified streams of revenue, low capital requirements, and strong and stable cash flows, TransUnion looks like it may continue to rise even higher.
8. TerraForm Global
Renewable energy provider TerraForm Global (NASDAQ: GLBL) raised $675 million in July 2015, but it was sunk by the bankruptcy filing of its parent, SunEdison, and the fact that it has failed to file any financial reports in more than a year. There is the possibility that it will be bought out by private equity firm Brookfield Asset Management, but the yieldco has contracts that will go into default on a change of control, making any buyout an uncertain and risky affair. Since going public at $15 per share, TerraForm Global has lost more than three-quarters of its value.
7. Blue Buffalo Pet Products
Premium pet-food maker Blue Buffalo Pet Products (NASDAQ: BUFF) also went public in July 2015, but it has enjoyed a better time than TerraForm Global since then, when it raised $676.6 million after being offered for $20 per share: It has risen almost 24%. The pet-food industry has been moving toward premiumization as pets become more like members of the family, giving pet-food companies like Blue Buffalo a growth platform to build on.
Fitbit (NYSE:FIT), the leader in wearable fitness technology, hit the public markets in June 2015 at a price of $20 per share, raising $731.5 million in the process. The stock began with a lot of promise but has since fallen hard as demand for wearables has waned and smartwatches like the Apple Watch have gained popularity. While Fitbit still has 23% of the market, industry shipments have virtually flatlined, indicating that the market for wearables with limited functionality may have long since peaked. Fitbit has lost 63% of its value since going public.
In another June 2015 IPO, Univar (NYSE:UNVR), a distributor of industrial and specialty chemicals, went public at $22 a share and raised $770 million. Although it has gained 19% since then, its rise has been much more dramatic in 2016, as it is up more than 50% this year, having lost half its value over the first six months or so due to lower demand from the oil and gas markets it serves. Strengthening prices and a number of acquisitions made this year have put Univar in a much stronger position.
Luxury performance-car manufacturer Ferrari (NYSE: RACE) initially stalled after going public in October 2015 and raising $893.1 million, but it has since raced higher and now trades 12% above its IPO price of $52 a share. Luxury products are doing well in the market, and Ferrari is a premier product. While its limited production volume makes growth difficult, high-priced limited editions supplement its stable of performance vehicles.
3. Columbia Pipeline Partners
Easy come, easy go. Pipeline operator Columbia Pipeline Partners (NYSE: CPPL) went public in February 2015 at a price of $23 a share. It was the first master limited partnership to go public that year, and one of the few IPOs of 2015 to raise more than $1 billion. TransCanada (NYSE: TRP) first bought its parent Columbia Pipeline Group in March of this year, then offered to buy the MLP in September for $15.75 per share. On Nov. 1, however, TransCanada said it would buy the pipeline company for $17 a unit. That still leaves the MLP's value at a 26% deficit to its IPO.
2. Tallgrass Energy GP
Another owner of a pipeline network that went public in 2015 was Tallgrass Energy GP (NYSE:TGE), which raised $1.2 billion from its May offering that year. The company is a limited partnership that owns the pipeline operator Tallgrass Energy Partners. Like other businesses tied to energy, Tallgrass Energy GP found its stock hurt by the collapse in oil and gas prices but ultimately recovered, as the market itself did. Yet after bouncing higher early in the year, shares have largely traded sideways as pipeline operators are pressured over whether their contracts with exploration partners can withstand falling prices. Currently trading at $29 a share, Tallgrass Energy's stock is down almost 11% since the IPO.
1. First Data
The biggest IPO of 2015 was electronics-payments leader First Data (NYSE: FDC), which raised $2.6 billion in its October 2015 offering. Yet the IPO also got off to a slow start, as its $16 price was below the midpoint of the $18-$20 expected range, and it barely moved in its first day of trading.
Although the company processed more than 2,300 transactions per second and brought in $1.9 trillion last year, it has yet to record an annual profit since 2010, though it's on pace to do so this year: Through the first nine months of 2016 it has recorded earnings of $409 million, compared to losses of $105 million the year before. Shares are down 10% from the IPO price.
A look back
Of the 10 biggest IPOs of 2015, only four stocks are showing gains from their offering prices, and those only as a result of improved market conditions this year. Sometimes, not even buyout offers gave the stocks enough of a boost to overcome the deficits generated.
That underscores the difficulty (and foolhardiness) of investing in IPOs. Investors would be better served waiting a year or so before giving newly public companies a closer look.