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5 Biggest IPO Fails in History

Pivotfarm's picture




 

There’s always a lot of fanfare when it comes to Initial Public Offerings. The bunting is brought out, the trumpets sound, the people stand up with killer actor and actress smiles and the champagne is popped at the New York Stock Exchange.

Then? Sometimes, the hype works, the people are still popping the fizz. But, sometimes, even when the company is doing wonders before being launched on the stock exchange, it suddenly goes all nightmarish on Wall Street and the price just belly-flops instead of doing a super-duper double flip.

But, who knows, when you jump into the deep blue unknown of the stock market what is actually going to happen? Or rather, who knows, sometimes, what people out there in the market will find out about your company the day it goes public. Then it really does hit the fan, big time!

Here are the worst IPO fails of all time in the world. The ones that we thought would be unfailingly good. The ones that we thought we could bet our bottom dollar on and still strike it rich. But, the unpredictability of the market, failing to show through brought the image of these companies to their knees when the stock prices crashed as the doors of the stock exchanged opened, and the shares flowed out like water going down the plug-hole!

1.       Facebook

Facebook

Facebook

In 2012, Mark Zuckerberg launched Facebook in a $16 billion IPO. Initially the company had filed for a $5 billion IPO and the company had been valued at $104 billion (which was incidentally the largest evaluation ever in the history of new public companies). Each share was worth $38. Shares struggled to keep their head above water on the opening of trading on May 18th, but surprisingly there were 460 million shares changing hands and that was the largest ever trading volume for an IPO. It was discovered that Morgan Stanley, JP Morgan and Goldman Sachs, the underwriters for Facebook’s launch had cut their forecast earnings for Facebook.

The stock was free-falling and the only thing that stopped it was the circuit breaker or the trading curb (when the stock market stops trading for a while due to too-heavy falls in the price of stock). Trading curbs were set up after Black Monday in order to prevent panic-selling taking place. Had there been no use of this, we would have said goodbye to Facebook. Could we have lived without it?

After the first day of trading and the investigation by the Financial Industry Regulatory Authority (FINRA), it was discovered that there had been technical hitches and glitches with the systems and when people had tried to sell, it was impossible for them to do so, as they were being delayed. When the sales went through, they ended up losing even more money. It was said that the scheme was nothing more than artificial inflation of the price of the stock. The stocks were ‘chop stocks’ or microcap-stock fraud.

Legal action was taken as a consequence against Morgan Stanley for having provided certain people with adjusted figures on earnings for Facebook. It was called a ‘fiasco’ by the Wall Street Journal.

Today Facebook has a stock value of $24.33, which is way below the initial $38. But, it’s better than it was. At the end of 2012 Facebook was trading at just half of that, so it lost half its market value. But, now it has added on 50% to what it lost. It’s currently worth in the region of $67 billion. But, that’s still enormous volatility in movements. What’s going to happen next? Maybe the other flops have the answer?

2.       eToys.com

etoys.com

etoys.com

eToys wasn’t always a dismal failure. It was once at the top of the toy market, competing with Toys ‘R’ us and the others and giving as good as they could get. Then the Lego just fell apart and eToys was forgotten going into Chapter 11 in 2001. It was Goldman Sachs that was the head underwriter this time for the floatation.

The prices of a share should have been somewhere around the $10-$12-mark on opening in 1999. But, the final offering ended up at $20. It soared as the price of its shares reached $77 at the close of business on the first day. Child’s play, right? Those same shares ended up being worth just $0.09 when things went topsy-turvy and the shareholders started dumping the stock big time. What went wrong? Over-investment in advertising and also putting too much money into warehouses, while failure to keep up with orders at Christmas-time. The public is rarely forgiving when little Johnny doesn’t get his toy train on time.

3.       Pets.com

Pets.com

Pets.com

Pets.com is another one that rolled over and died with its legs in the air. It opened shop in 1998 and lasted just over two years. It had a high profile and it drew enormous attention, quickly becoming almost a household-name. $300 million in investment capital went up in smoke as Pets.com went down the tubes and closed shop. It raised $82 million for its IPO and shares were at $14. But, whoever was working for them got it all wrong. They undercharged shipping costs and sold most of their products at cost-price or for less than it actually cost to produce them (sometimes at up to 1/3 of the price). Shares fell to a record low of just $0.19, ruining both the company and the investors.

4.       Vonage

Vonage

Vonage

Vonage is a voice-over IP network. It still exists and is one of the few that managed to scrape through even though it hit rock bottom. It went public in 2006 at a share price of $17. It dropped by over $23% in just that first day and ended up at $13. It was the worst for any IPO up until 2006. Looks like it’s always the worst so far, but sometimes it can get much worse with the next one waiting round the corner. The good thing about records is that they are there to be broken! Share sales weren’t going through and it was down to a technical glitch once again! Went they went through, they were ruining the sellers. That was for the sellers. For the buyers however, it was whole different kettle of fish. The glitch in the system meant that buyers weren’t able to buy. But when they did, they were told that they had to stick to the original share price. Any voice-over IP network that can’t get its act together isn’t worth its weight in anything, is it really? The company currently has over 2.5 million subscribers.

5.       LastMinute.com

LastMinute.com

LastMinute.com

LastMinute.com is still around too, but only by being bought up itself at the last minute by Travelcity in 2005. LastMinute.com is specialized in anything that you can buy at the last minute from cheap airline tickets to the theatre tickets for the show you always wanted to see. At its peak it had 500, 000 visitors per day. Pretty good in terms of concept. Others thought so too as its original share price of 380p on the London Stock Exchange valued the company at £571 million. Shares rose by 28% on that first day to 511p. But within a few months the shares were only worth 190p which was half the value at the start. LastMinute.com wiped off £35 billion in just one day at one point. The company went from bad to worse. Pre-tax profits in November 2003 were only £200, 000, while analysts had expected £4 million. The company got bad publicity from unhappy customers on the net and it used a policy of negative option selling (unless customers un-ticked boxes for things like insurance, etc., then the sale for that item automatically went through).

This is just the top few companies that have failed beyond our wildest expectations. We thought they were the top companies, doing so well, that they would float upwards and upwards. But, what goes up must come down, someone once said. These companies came down with a thud sometimes. Few have managed to stick it out to the bitter end. But, that’s business! We are all in in it for that, aren’t we? Should try to remember though, that one false move and the sniper (read: customer) will be waiting to know you down and then it’s downhill free-falling until you hit the bottom. Only the best have managed to stick it out.

Something obviously was amiss when these companies were floated. Something went wrong either before with the over-evaluation of their stock, or during with the glitches and the system failures, or after with the over-spending and ‘I’m-the-king-of-the-castle’ attitude. Nobody(s the king of the castle unless the customer says so, right?

What do you think these companies did wrong?

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Wed, 06/12/2013 - 00:39 | 3649194 patb
patb's picture

Digital Entertainment Network was the greatest IPO fail in the history of IPO fails. The three founders are hit with Indictments for drugging and raping a teenage boy 24 hours before the IPO. They flee the country...

 

http://en.wikipedia.org/wiki/Digital_Entertainment_Network#Collapse

 

Tue, 06/11/2013 - 21:18 | 3648669 Seize Mars
Seize Mars's picture

Yeah Alaric has it: fucking BATS was EPIC.

Seriously, $14 to zero. In less than a second.

ha ha ha ha Ha Ha Ha HA HA HA HA HA HA HA

Tue, 06/11/2013 - 17:27 | 3647856 Joshua Falken
Joshua Falken's picture

Surely the Uber Morgan Stanley embarassment that is Transmeta should be on this list

Tue, 06/11/2013 - 14:26 | 3647027 nofluer
nofluer's picture

Based on real world numbers a few days after the FB IPO, I said the IPO should have been around $6, $10 if you wanted to be "irrationally exuberant." I still believe I was right, but haven't bothered to figure what the stock SHOULD be trading at lately, absent manipulation by the PTBs. I don't have a dog in that fight.

Tue, 06/11/2013 - 14:17 | 3646968 pragmatic hobo
pragmatic hobo's picture

failure for whom? FB is valued at close to $60B and insiders have cashed out billions on the backs of god knows who.

Tue, 06/11/2013 - 14:00 | 3646878 ebworthen
ebworthen's picture

You have to provide a service or produce something that people want and charge for it.

Most of these are just ideas - and not underpinned by actually prvoding a superior product or service worth paying for.

Tue, 06/11/2013 - 13:29 | 3646707 IamtheREALmario
IamtheREALmario's picture

Facebook was a huge success for the insider (cough) investors who bid up the price prior to so called official IPO date. For the inside (cough) investors, managed by none other than Goldman Sachs, there was great haul on theFacebook IPO. From talking to a friend of mine a Morgan Stanley (who wanted a $28/sh offering price), they had to talk Zuckerberg and his team down from an offering price that was even higher than $38 that it came out at. The IPO price was just a statement of ego, not value and the non-inisder investors had no idea that the cream has already been skimmed before they bought.

It was not a fail. It was a fraud, IMO.

Tue, 06/11/2013 - 13:09 | 3646624 Shaten
Shaten's picture

Pandora needs to be added.

 

Got offered that IPO, looked at the company and asked myself, how do you make money when you give away your product for free. In fact the more people that listen the more you loose. Kept right on walking.

Tue, 06/11/2013 - 12:40 | 3646498 Element
Element's picture

 

 

Good writeup, IPO madness blowback is everywhere, this one's a recent cautionary tale from Billabong surfing clothing's share death-rattle, from $6.37 in July 2011, to ~21 cents now.

"This ends one of the worst deal processes in years, with some comparing Billabong's plight with the likes of Sundance and Gunns," he said. " ... In December Billabong rejected takeover offers from both parties that were worth around $540 million, and then later received a reduced offer of $300 million from Sycamore.
 
Billabong has also warned shareholders that pre-tax earnings will not be as much as it hoped. It has lowered the EBITDA (earnings before interest, taxes, depreciation, and amortisation) forecast from $74 - $81 million from February to between $67 - $74 million, blaming weak Australian and European sales and higher than expected losses on a new brand in Europe.
 
He says there are questions surrounding what will happen with the under-performing European chains and the fact there are unlikely to be too many buyers. "If there are no buyers, how does Billabong reinvigorate the division with such limited capital?" he said."
 
http://www.abc.net.au/news/2013-06-04/billabong-delivers-profit-warning-...

--

If they hadn't been over-ambitious with the IPO in a global demand die-off they'd still be a healthy and realistically smaller and much better structured and scaled private company with far less debt, making healthy profits still.

Tue, 06/11/2013 - 12:33 | 3646476 Bam_Man
Bam_Man's picture

Zynga and Groupon are certainly in the "top 10", if not the "top 5".

Tue, 06/11/2013 - 12:53 | 3646556 nugjuice
nugjuice's picture

Agreed.

Groupon should be on here - what a disaster. From open to low was down 91% 12 months after IPOing.

Zynga down 81% 12 months after the IPO.

Way worse than FB. I mean, I get its inclusion simply because of how popular it was, but still.

That would be like FB being worth $3.42 right now per share (it's about a year after IPO). Comparatively, it's held up very well.

Tue, 06/11/2013 - 13:54 | 3646854 Herd Redirectio...
Herd Redirection Committee's picture

Dont' people get it, its not an IPO, its a distribution scheme, at peak price.

Tue, 06/11/2013 - 12:26 | 3646451 AlaricBalth
AlaricBalth's picture

I think the BATS IPO should have warranted a special mention. When it comes to IPO fails, BATS was epic. From $14 to $0 in 500 milliseconds. Attached is the chart:

http://blogs.reuters.com/felix-salmon/files/2012/03/3079-2.jpg

And the ZeroHedge coverage: http://www.zerohedge.com/news/skynet-now-cannibailizing-itself-bats-ipo-flash-crashes

Tue, 06/11/2013 - 23:51 | 3649131 Widowmaker
Widowmaker's picture

The sad but simple truth of the matter is that without Buttfuck Shalom and Fraud Inc (for YOUR benefit) the entire market would crater just like BATS.

Do NOT follow this link or you will be banned from the site!