Recent IPOs Provide a Roadmap for Trading Facebook

History shows the danger of betting against it too soon

By Daniel Putnam, InvestorPlace Contributor

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)


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)


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)


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.

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