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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.
Their massive size alone may be a hindrance, according to Ritter.
For instance, Alibaba could have a market capitalization approaching $170 billion if it prices at the top of its projected range. In order for the shares to double, Alibaba would have to become the second-largest company on the NYSE by market cap, behind Exxon Mobil Corp and above Johnson & Johnson.
"So the possibility of doing more than a couple hundred percent is much more limited than when a smaller and younger company goes public," Ritter said.
Even the 140 percent surge in ICBC, the Chinese bank and second largest IPO with $21.97 billion raised in October 2006, failed to keep pace with that year's meteoric showing by the Shanghai SE Composite Index. The index rose more than 207 percent in the same stretch.
Another risk may be Alibaba's consumer focus, and consumer-oriented stocks have fallen out of favor this year. The S&P 500 Consumer Discretionary index, which includes a bevy of U.S. e-commerce names such as Amazon.com Inc, is the poorest performer of the S&P 500's 10 industry sectors this year.
"Because Alibaba is already creating net income they're likely to perform better, but those earnings are likely to be cyclical," said Diane Garnick, chief executive of asset management firm Clear Alternatives LLC. "As consumers buy more, Alibaba will be one of the most consumer sensitive or economically sensitive companies out there."
Just three of the eight mega IPOs that turned in a gain the first year managed to top their local market. NTT's 152 percent rise in the 52-weeks after its October 1998 debut outstripped the 22 percent gain for the Nikkei and stands out as the best of the pack.
Australian telecom operator Telstra, which hit the market in November 1997, gained 85 percent in its first year versus a 6.5 percent rise for the S&P/ASX 200. And Hong Kong investment house AIA Group Ltd. eked out a 4.8 percent gain in the year after its October 2010 IPO, enough to beat the Hang Seng Index, which dropped nearly 14 percent.
Perhaps the most notable showing by this small band of outperformers was Visa Inc. The largest credit card payment processor debuted in March 2008, in the early stages of a budding global financial crisis, and over the next year slipped just 6.7 percent while the U.S. benchmark S&P 500 plunged nearly 40 percent.
Of the 15 biggest IPOs, AT&T Wireless logged the weakest outright performance in the first year. It had the unfortunate timing of coming to market in April 2000, barely a month after the dot-com bubble started bursting.
Debuting under the ticker 'AWE' on the New York Stock Exchange, it enjoyed a first-day gain of more than 8 percent but then proceeded to dive 38 percent over the ensuing year, lagging even a 14.5 percent fall by the S&P 500. The company, a unit of AT&T Corp, is no longer listed.
Other high-profile laggards include General Motors Co, which fell 37 percent versus a 1.6 percent gain by the S&P, and Bank of China Ltd, which rose 28 percent but was no match for the Shanghai Composite's 107 percent increase.
The poorest relative performance is a distinction held by Facebook Inc. Not only did the stock barely remain above water on its first day, it fell 31.3 percent in the next year, roughly a 50 percent underperformance against the S&P 500's 29 percent gain.
Patience did pay off for those who liked Facebook, the world's largest online social network. Shortly after its first-year anniversary, the stock found its footing and has shot up more than 230 percent since.
The hype surrounding IPO investing is enough to keep some investors steering clear.
"Excitement is one thing that's an enemy of your portfolio," said Tony Scherrer, research director and a co-portfolio manager at Smead Capital Management in Seattle, with just under $1 billion in assets.
"While Alibaba might be the poster child of today, there generally speaking is a lot of hype around IPOs. For our part, we want to see a long history of profitability for a company. If a stock hasn't been publicly traded for 10 years or so, we feel we don't have enough information to do a good lookback."
Additional reporting by Luciana Lopez, Jennifer Ablan and David Gaffen; Editing by Tiffany Wu