The recent comeback in Facebook (NASDAQ:FB) hasn’t earned as much attention as the company’s disastrous IPO, but it has punished skeptics nonetheless.
As of midday Monday, the stock had gained 19% in the eight sessions since its post-IPO low. If this pattern looks familiar, it should: Facebook is following the same path as almost all of the social media stocks that have come to the market in the past year. And if history is any indication, the stock could have further to run. Those inclined to bet against Facebook’s recent run-up via the stock’s high-priced puts should keep this in mind.
Below is a performance summary of some of the largest social media stocks in their initial months of trading. The common theme here is the outstanding average gains these stocks put up after their post-IPO selloff — an average of 62%. Compare their initial weeks of trading to the pattern Facebook has printed thus far, and the similarity among all five of these stocks is apparent:
Ticker: LNKD
Opened at: $83, 5/19/11
Close, first day of trading: $94.25
Subsequent low: 22 sessions after the IPO, decline of 23.2% from first-day open
Percent gain in the rebound: 73% (18 sessions)
Groupon
Ticker: GRPN
Opened at: $28, 11/4/11
Close, first day of trading: $26.11
Subsequent low: 15 sessions, decline of 45.6%
Percent gain in the rebound: 54% (9 sessions)
Zynga
Ticker: ZNGA
Opened at: $11, 12/16/11
Close, first day of trading: $9.50
Subsequent low: 14 sessions, decline of 27.2%
Percent gain in the rebound: 79% (25 sessions)
Yelp
Ticker: YELP
Opened at: $22.01, 3/2/12
Close, first day of trading: $24.58
Subsequent low: 6 sessions, decline of 10%
Percent gain in the rebound: 42% (13 sessions)
Other recent technology IPOs follow the same pattern, including Demand Media (NYSE:DMD), Pandora (NYSE:P) and Angie’s List (NASDAQ:ANGI). Another notable point of comparison is that all seven of the stocks mentioned here experienced significant downside once their post-IPO relief rally played itself out.
The takeaway: Any gain in Facebook is likely to have investors chomping at the bit to buy puts. However, its gain of 19% thus far pales in comparison to the rebounds in other recent tech IPOs. Be on alert for the opportunity to bet against Facebook, but manage the timing of your entry point with the utmost caution.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.
A long-time follower of the IPO scene, back in 1999 Tom started one of the first sites in the space called WebIPO. It was a place where investors got research as well as access to deals for the dot-com boom. Tom also wrote the top-selling book, Investing in IPOs. In it, he covers all the aspects of analyzing an IPO, such as reading the prospectus, detecting the risk factors and understanding some of the arcane regulations. But don’t worry — if that process is too intimidating for you, thankfully Tom will do the legwork for you right here in the IPO Playbook blog.
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