A year later, most mega IPOs are mega laggards

Thu Sep 18, 2014 3:01pm EDT
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By Dan Burns and Akane Otani

NEW YORK (Reuters) - If history is any guide, investors who miss out on getting a slice of Alibaba's massive initial public offering may want to think twice about jumping into the stock once it hits the New York Stock Exchange.

A Reuters analysis of the previous 15 largest IPOs of all time shows that beyond a first-day pop, the first year's performance for most of these mega deals was a major flop.

Alibaba Holding Ltd could seize the mantle from Agricultural Bank of China Ltd as the largest IPO in history when it closes the deal on Thursday to raise some $22 billion.

China's largest e-commerce player, which reported net income tripling to nearly $2 billion in its most recent quarter, has already boosted the IPO's pricing range, and it is clear that not everyone who wants in on the deal will be able to get shares before they hit the market.

As a result, like so many past IPOs, it would not be surprising to see a hefty jump in Alibaba's shares on their debut on Friday. Still, IPO experts say it could be hard for the stock to maintain that momentum and outperform afterward.

"I think there is roughly a two-thirds chance that Alibaba will underperform in the next three years," said Jay Ritter, a finance professor at the University of Florida in Gainesville, who tracks IPOs.

Eight of the 15 biggest IPOs gained in the year after their first day's close, but their average increase of about 17 percent was skewed by two massive gains: China's ICBC and Japan's NTT Docomo, which more than doubled. The median performance of the group was a far more modest 4.1 percent.

Moreover, 11 of these titans, all of which raised at least $10 billion in their IPOs, lagged their local stock market, most of them by double-digit margins.   Continued...

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province, April 23, 2014. REUTERS/Chance Chan