The Harder They Fall: High-Popping IPOs Hammered In Aftermarket Trading

by: Renaissance Capital IPO Research

As the NASDAQ experienced its biggest one-day drop since late 2011 amid a continued tech sell-off, the biggest losers have been companies that saw spectacular first-day trading. The market's downturn is a response to some speculative buying of these as-of-yet unprofitable companies. To wit, the top two first-day performers in the past year have also been two of the worst in aftermarket trading. Over half of all IPOs in 2014 have dropped in the aftermarket (56%); their average first day return is 24%, compared to the 18% average for the entire group. The first quarter’s wave of IPO activity coincided with much higher valuations, as reflected in their first-day returns and premiums to the midpoint of the range.

High Popping and Low Dropping IPOs in the Past 180 Days*
Company (Ticker) Industry IPO Price vs. Midpoint First Day Return Aftermarket Return
Dicerna Pharmaceuticals (NASDAQ:DRNA) Health Care - Biotech 25% 207% -53%
Castlight Health (NYSE:CSLT) Technology - Software 60% 149% -52%
Veeva Systems (NYSE:VEEV) Technology - Software 54% 86% -35%
Varonis (NASDAQ:VRNS) Technology - Software 22% 100% -34% (NASDAQ:COUP) Technology - Internet 23% 88% -29%
Akebia Therapeutics (NASDAQ:AKBA) Health Care - Biotech 10% 57% -29%
voxeljet (NYSE:VJET) Capital Goods - Industrial -7% 122% -26%
The Containter Store Group (NYSE:TCS) Consumer - Retail 20% 101% -9%
Twitter (NYSE:TWTR) Technology - Internet 40% 73% -5%
*Worst aftermarket performers among IPOs with a >50% first-day return

Other recent IPOs like FireEye (NASDAQ:FEYE) and Tableau (NYSE:DATA) have retained positive aftermarket returns, but are trading down 49% and 36%, respectively, from the high watermarks they saw in February and March. These are symptoms of a market that is clearly in a period of correction. The "mini-crash" during a week of unusually high activity could signal postponed or withdrawn deals as the IPO window begins to close. However, Zoe's Kitchen (NYSE:ZOES), a fast-casual restaurant chain serving Mediterranean food, priced at the high end of its range tonight. Investor appetite appears fickle in this period of high volume, low returns and uncertainty surrounding hype versus quality.