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As the pace of initial public offerings (IPOs) quickened during the Internet bubble, perhaps the most salient feature was the "pop," or the price differential between a stock's offering price and its closing price on the first day of trading. When the bubble burst in the spring of 2000 -- and an estimated $4 to $6 trillion of shareholder wealth evaporated -- it became clear that the enormous first-day pops of the stocks had given companies a lot of publicity, but not much more. "What is the reason that you have an IPO?" asks Joe Nocera of Fortune magazine. "It's to put money in the coffers of the [issuing] company. That's the reason you do it. When you have a situation where it's going up 300 percent on the first day, that's 300 percent that the company is not getting. It's going into the pockets of investment professionals. ... They don't care if the company goes out of business the next day, as long as they can flip their IPO and take their profit. The dereliction of duty that went on here is just appalling."
Here are some statistics on average first-day returns during the 1990s, and the top pops of the Internet bubble.
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· Average first-day returns and money left on the table
Source: Jay Ritter (University of Florida), "Some Factoids About the 2001 IPO Market" |
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· Top Ten First-Day "Pops"
Source: Jay Ritter (University of Florida), "Big IPO Runups of
1975-2000"; Hoover's
Online |
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· Number of IPOs which doubled in price on their first day of trading
Source: Jay Ritter (University of Florida), "Some Factoids About the 2001 IPO Market" |
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