Rough Market Takes Toll On U.S. IPOs

by: Renaissance Capital IPO Research

The downward trending stock market is taking its toll on the IPO market. No deals are officially scheduled for next week. Of the nine deals on the calendar last week, one was postponed and three were discounted over 20% below their proposed range.

Six of the U.S. IPOs in the fourth quarter are currently trading below their IPO prices. The best performers have been technology and growth IPOs and the worst are biotech, cyclical industries and oil and gas. Among the best performers are fabless chip supplier InvenSense (NYSE:INVN) (up 43% from IPO) and online review forum Angie's List (NASDAQ:ANGI) (up 23%). The worst performing IPO of the quarter so far is movie special effects company Digital Domain Media Group (DDMG) (down 22%).

Of note, Groupon (NASDAQ:GRPN) is starting to see selling aftermarket pressure and is now flirting with its $20 offer price. The unprofitable daily deals company faced a rocky road to its IPO due to its use of controversial accounting metrics and its unproven business model, but was ultimately able to price its shares above the proposed range and trade up 31% in its debut, helped by its relatively small float (5.5% of total shares outstanding). However, Groupon's stock is likely to be volatile going forward, similar to other recent Internet IPOs with high expectations for growth, including LinkedIn (NYSE:LNKD) ( up55%), Pandora (NYSE:P) (down 25%) and Zillow (NASDAQ:Z) (up 15%).

The FTSE Renaissance IPO index is up 6.6% so far in the fourth quarter, outperforming the S&P 500, but the index has underperformed in November. While the average U.S. IPO since October has returned 8% from its offer price, average aftermarket performance, or the return from first day close, has recently turned negative (-0.7%). Aftermarket performance in recent IPOs is critical to investor participation in new IPOs.

The IPO calendar is empty heading into the Thanksgiving holiday and underwriters are hesitant to officially put any deal on the schedule just yet. Two relatively small IPOs, ski resort operator Peak Resorts (PEAK) and IT company FusionStorm (FSTM), filed pricing terms early this week, but have yet to officially launch investor roadshows.

There are over 200 companies waiting in the wings to get through the IPO window and December could prove challenging if market volatility persists. But there is hope that social game juggernaut Zynga (ZNGA) could break the code.