IPO’s Poor Performance This Week Is Freaking out the Investors

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., January 23, 2017. REUTERS/Brendan McDermid - RTSWZD9

The biggest IPO in the last five years of $3.4 billion, which was subscribed some 10 times, has made a weak start in this week. After issuing non-voting shares to the investors, the company got listed on New York Stock Exchange last Thursday. That very day, the shares closed 44 percent higher than the issue price of $17. The very next day i.e. on Friday, the shares again surged 11% on closing and settled for $27.09 with the market value of the company hovering at $40 billion.

This week didn’t look that promising and in fact, the investors are disappointed by the weak performance of the stock. On Monday, the shares slumped some 7% intraday and another 11% on Tuesday. This disappointing performance of the company shares featured it in the list of worst 10 percent of IPOs that performed badly in the first five days of getting listed.

The median for the first five-day drop is 0.12 percent. But this performance is in no way an indication of the future performance. There are some 2000 IPOs listed in the last 10 years and no correlation has been proved between the performance of the first week and the first year.

Facebook is often referred to as the rival of Snap. In fact, Snap is the biggest IPO since the one launched by Facebook in 2012. Today Facebook is a high-flying tech stock, but its shares also took a nosedive in the first week of the launch. It took more than a year for its shares to reach the opening price.

If we are to believe the FactSet data analysis by CNBC, then nearly 40% of all the IPOs that were listed in the past decade went down in five days after making a fantastic debut. The same figure goes to 65% if the IPO was a big one, say to the tune of $2 billion or higher.

An analyst at Pivotal Research Group, Biran Wieset had placed a price target of $10 on March 2 on the stock. He has said then, “Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies, with a core user base that is not growing by much and which is only relatively elusive.”

FactSet findings also point out that most of the analysts have given an underweight rating to the company and it is still to get a ‘buy’ rating from anyone. Five out of the seven covering the share have recommended a ‘sell’.

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