In a previous article Class Warfare in New Tech Stocks: How Founders And Early Investors Continue To Retain Control After An IPO, we highlighted how retail investors are at a disadvantage when investing in some of shiny new tech IPOs, because of the disparity in voting rights between the different classes of shares. However, maybe there is still a way for retail investors to make money from these IPOs, that is a little less of a gamble.
Try shorting IPO stocks before the IPO lockup period for corporate insiders expires.
In the table below we examine the performance of shares of LinkedIn (LNKD), Pandora (NYSE:P), Groupon (NASDAQ:GRPN), Zynga (NASDAQ:ZNGA) , and Facebook (NASDAQ:FB) between their IPO date and the lockup expiration date.
When LinkedIn IPO'd in May of last year they ended the day at $94.25, six months later at the lockup expiration date their stock was down to $70.00 a drop of 26%. Of all the stocks we examine here though, they are the only stock to hold on to a slight increase over their IPO, currently trading for $102.58.
Pandora Media dropped an astounding 43% between June and December of 2011, which was tame compared to the next company we looked at.
Groupon's IPO in November 2011 attracted a lot of attention, and did fairly well on the day of the IPO. However 210 days later on the day of the lock up expiration day, the stock closed at $9.69 - a drop of 62.9%. Currently Groupon trades for $4.72 a further drop of 51%.
Zynga is currently trading for $2.99 a 69% drop from its EOD close price at $9.50 on the day of its IPO. They had dropped 36% to $6.09 on the day of their lock up expiration date.
Facebook had the shortest lockup expiration period of 91 days and saw a 38% drop between its IPO in May, and its lockup expiration date last week (August 16, 2012).
So, while this is interesting information is there anything that's actionable? Absolutely, by tracking upcoming IPOs and reading the S-1 filings you can figure out the lockup expiration dates, look for the "Shares Eligible for Future Sales" or "Lockup Agreement" sections, you can create yourself a target list of IPOs to consider shorting.
Two internet stocks that are coming up for lockup expirations are Yelp (NYSE:YELP) and Bazaarvoice Inc. (NASDAQ:BV). Both stocks are already trading below where they ended up on the day of their IPO. Perhaps there is an opportunity here.
Disclosure: I am long FB.
Additional disclosure: SQBlueSky is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational and recreational purposes only, and is meant to serve as an example of the analysis that can be done with SQBlueSky data and tools. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. It is up to investors to make the correct decision after necessary research. The information and data is believed to be accurate, but no guarantees or representations are made.