Date
20 October 2017
Investors would have already lost 30 percent of their money had they bought Snap shares at their high during its IPO earlier this month and held them until now.  Photo: Reuters
Investors would have already lost 30 percent of their money had they bought Snap shares at their high during its IPO earlier this month and held them until now. Photo: Reuters

How profitable are tech IPOs?

Snap Inc. spiked shortly after listing earlier this month at the initial public offering price of US$17. The stock hit a high of US$29.44 at one point but has since then given back most of the gain.

At the last closing price of US$20.77, investors who bought at the highest point would have already lost 30 percent of their money in slightly more than a week.

In recent years, most tech IPOs did quite well, at least for a while. But over a longer time frame, not that many have actually made money for their investors.

I randomly scanned through the price history of 10 popular counters, including Facebook, Alibaba, Twitter, Groupon, Lending Club, Pandora and GoPro. Nine of them gained on the first trading day, ranging from 9 to 88 percent.

The debut was of course closely related to the overall market sentiment at the time.

Suppose investors had bought into these shares at the closing price of the first trading day and had held them until now, they would only be able to see positive returns on two of them — Facebook and Alibaba.

Tech IPO may have enjoyed quite a bit of hype, but unless one can get the timing right, they are not as lucrative as most people think they are.

Meanwhile, the success of Snap may pave the way for other start-ups, but the best ones, like Uber and Airbnb which are still growing rapidly, probably won’t be among them because these super start-ups have no problem getting the funding they need in the private market and thus have no urgency to seek a listing.

The full article appeared in the Hong Kong Economic Journal in Chinese on Mar. 9

Translation by Raymond Tsoi with additional reporting

[Chinese version 中文版]

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RT/RA

Columnist at the Hong Kong Economic Journal

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