10 Hugely Popular Companies That Fell Flat on Their Faces
When a big name goes public, some pretty harsh reality checks can ensue.
MINYANVILLE ORIGINAL For big-name companies, an IPO is like a débutante ball. There's massive excitement, wild speculation, and (in the case of some companies) extravagant ballroom gowns. Sometimes, though, even the most lavish parties end with the hostess in tears because none of the cool kids (investors) came or stuck around for long.
Pity the tech IPOs which, despite their promising ideas, positive spin, and future potential, fall flat because of their inability to answer analysts' tough questions about revenue sources and business models. Here are 10 of the biggest tech IPOs to fall flat or worse.
10. Vonage (VG)
Voice-over-IP pioneer Vonage (famous for its television ads that made heavy use of the song “Woo Hoo” as recorded by the 126.96.36.199’s) kicks off our list, and what a lead-off hitter! Vonage made an unusual move by offering its stock to its customers ahead of its 2006 IPO and then proceeded to drop 24% on its first day. The customers who bought stock, though, were forced to pay the full IPO price, resulting in a three-year class-action lawsuit that Vonage never really recovered from. It’s currently trading around $2 a share and serving (along with perennial laughingstock BATS Global Markets) as an example of how not to go public.
9. Shanda Games (GAME)
When Chinese entertainment giant Shanda Interactive Entertainment (SNDA) decided to spin its gaming division into a separately-trading company, it had every reason to be optimistic: Changyou.com (CYOU), a major competitor, had gone public five months earlier and seen its stock increase by 140%, and Shanda’s games were massively popular in Asia. That excitement led to a risky play by Shanda’s underwriters, Goldman Sachs (GS), who increased the number of shares offered to the public by about 20 million at the last minute. This meant that although the company raised over $1 billion on the first day, the number of new investors flatlined afterward, and the stock lost 14% almost immediately. This mismanagement, coupled with the fact that none of Shanda’s games ever really caught on in US markets (Legend of Mir 3, anyone? Anyone?), made Shanda Games a massive IPO flop.
8. Renren (RENN)
Sometimes companies die not with a bang but with a whimper. Just ask Renren, the much-hyped “Facebook of China” that went public in May of 2011. China’s potential for a vast amount of Internet growth had investors drooling, even though Renren was unclear about a lot of key details: Did it grow by 19% or 29% in a given quarter? Did it have accounting personnel who knew how to deal with US markets? Had it or had it not basically plagiarized the entire site from Facebook? (The answer to that last one? Yes.) It turns out that the IPO followed this pattern: Renren opened well but fell from $18.01 to $6.23 in six short weeks. Don’t say you couldn’t have seen it coming, Zuckerberg.
7. Pandora (P)
Another company to follow the open-well-and-then-collapse pattern is Internet radio company Pandora, which went public in June of 2011. As a company that provides an incredibly popular service, Pandora had no problem garnering initial interest and saw its stock rise from its initial price of $16 to over $22 on its first day. That number fell back down to $17.42 by the end of its second day on the market, though, which caused a spree of short-selling as investors felt buyer’s remorse; the stock plummeted 24% the next day and is currently trading at a stale $9.70 as cautious investors note its vast army of fast-growing competitors and its troubled business model.
6. Groupon (GRPN)
Oh, Groupon. Three short weeks after its IPO, it became clear that the online coupon company had done just about everything wrong, but even the most pessimistic analysts didn’t realize what that meant for Groupon’s stock prices, which are down from $20 at IPO to a measly $4.46 not even a year later. Part of this is due to cartoonish management by Groupon’s CEO, Andrew Mason, but it mostly comes down to Groupon’s business model: If consumers take actual delight in deleting your main product from their inboxes, you need some serious work. The stock is still in free fall as the recent rash of tech IPOs continues to suffer.
5. Zynga (ZNGA)
Online gaming company Zynga is seeing its executives stream out the door like rats from a sinking ship, but a year or two ago, you wouldn’t have bet on that. Zynga’s flagship game, FarmVille, was insanely popular, and despite concerns over competition and the constantly-changing mechanics of Facebook (where most of Zynga’s gaming takes place), excitement was high among investors. However, analysts continued to trumpet caution about social media listings, and Zynga opened flat, falling from $10 to $9.25 a share in its first four hours. It continues to struggle to this day, trading at $3.19.
4. Tudou (formerly TUDO)
The tale of Chinese media site Tudou is a testament to the power of rumors. Just before it went public, Tudou was beset with speculation about a possible bid from Chinese Internet giant Baidu (BIDU), setting investors’ stomachs aflutter. Even worse, the company’s CEO got divorced, a process with financial implications so vast that they pushed back the IPO date. The whole messy process devalued Tudou’s stock so steeply that the company’s largest competitor, Youku (YOKU), easily pounced within six months. Tudou ended trading today after the companies announced their merger; it took just one year for the third-largest video website on the planet to cease to exist.
3. Pets.com (formerly IPET)
You’d forgotten about these guys, admit it! Pets.com was one of the biggest names of the late-‘90s dot-com bubble, and its ride was perhaps the wildest of any dot-com startup: an ad during Super Bowl XXXIV, a float in the Macy’s Thanksgiving Day Parade, and a sock-puppet mascot who was voiced by Michael Ian Black and interviewed on Good Morning America. The only problem? The company hemorrhaged money every single day that it existed, since it had to charge less for shipping than it paid in order to attract customers; shipping massive bags of dog food isn’t cheap. After a brief bump at its IPO, Pets.com’s stock fell quickly under $1 and stayed there until the company folded, only about two years after it began. The puppet got a job at BarNone, though, so that’s something.
2. Facebook (FB)
You didn’t think Mark Zuckerberg’s baby was going to escape this list, did you? Facebook has set an unconfirmed but pretty obvious record for “most different people calling a company’s IPO the worst one ever,” despite the fact that it’s the second most visited site on the entire World Wide Web, reaching over 40% of global users every day. So what’s the problem? Well, in short, it’s revenue. Nobody has made a decent suggestion yet as to how the site can be profitable (most discussions have made vague mentions of advertising without really saying a whole lot). And it’s not just investors who are having problems because of Facebook’s poor IPO: The Nasdaq itself is facing charges that it mismanaged the offering, and even Facebook co-founder Dustin “Fievel” Moskovitz has been unloading shares. The social media giant continues to be a massive name on the web, but it’s currently trading under $20, down nearly 50% from its IPO price of $38 a share.
1. Manchester United (MANU)
Facebook’s woes may have gained more publicity over the past few weeks, but Manchester United’s financial troubles leave even the beleaguered social networking company in the dust. When Malcolm Glazer and his two sons took over the Red Devils in 2005, the club had no debt; now it owes more than $666 million. That alone was enough to cause the club to open flat when it went public on August 9. But debt isn’t the only bad news for United: the fact is that the club is so massively popular worldwide that there isn’t anyone on Earth with any money at all who hasn’t gotten a chance to spend some of it on Manchester United. This leaves very few markets into which the team can move and very few new sources of revenue; after all, it’s not as if it’s going to expand into any industry but soccer. The club is trading below its IPO on very low volume in recent weeks. The club's facing more than just financial problems these days, too: United was outplayed by Everton in its first match of the Premier League season last Monday, losing a goal to nil.