FROM HOT TO NOT
If there's one thing we can learn from watching the annual parade of initial public offerings (IPOs), it's that a good opening day is no guarantee of success. After all the "next big thing" hype and excitement dies down, some of the most promising IPOs have crashed and burned. Here are 25 notable examples.
KING DIGITAL ENTERTAINMENT
The company that created the addictive mobile game Candy Crush Saga went public in 2014 and raised $500 million, but the company's stock wasn't a hit. The stock opened at $20.50 and fell 15.6 percent by day's end. One year after its IPO, King Digital Entertainment stocks were down 23 percent. The company had the worst-performing initial offer of that year, and in 2016 Activision Blizzard acquired King Digital Entertainment for $5.9 billion.
The endearing puppy dog sock puppet that served as mascot for Pets.com was the star of one of the most popular Super Bowl commercials in 2000, but that wasn't enough to save the pet accessories and supplies company. The whirlwind ride for Pets.com lasted just 268 days from when it went public in 2000 to liquidation. In that time the company's stock fell from $11 per share IPO to just 19 cents on the day its liquidation was announced. The company lacked a solid business plan, losing money on nearly every sale by selling merchandise for about one-third the price paid.
A company that's been around since the early 1900s, CIT Group's impressive history did not guarantee success when it finally opted to go public in 2002. The company fell victim to the credit crisis and required a $2 billion TARP (government) bailout in 2008 to stay afloat. Still, that didn't stop the bleeding. In 2009, CIT Group filed for bankruptcy, but it's still around and has been trading around on the New York Stock Exchange.
An early gaming pioneer, Zynga is famous for creating Farmville and Words with Friends. When the company went public in 2011, it raised $1 billion, making it the largest American internet IPO since Google. Zynga's stock debuted at $11 per share and immediately soared by 10 percent. Then the downhill slide began. Within 15 minutes, the stock fell to $9.52 and in the weeks that followed the stock continued to fall. Zynga is still in business, though, trading at around $4 per share.
The downfall of grocery delivery service Webvan came as it tried to grow too quickly, too fast. The company's stock doubled on its first day, peaking at around $30 per share. In just over a year Webvan expanded services to eight cities and announced that it would soon be in 26 more, but it wasn't long before investors realized the company's customer base was not large enough to pay for the expansion. The company went bankrupt in 2001, laying off 2,000 employees.
This online toy company's stock jumped 280 percent to $76 on its opening day, making it seem like a new and powerful retail contender. Unfortunately, the company was unable to keep up with toy orders and spent too much money on advertising and warehouse space. The stock eventually dropped to just nine cents a share, and in 2001, eToys declared bankruptcy. Surprisingly, the company is still in business today.
The biggest IPO of 2016, ZTO Express also became the most significant flop of the year. The second-largest Chinese express-delivery company, ZTO shares began at $19.50 and then proceeded to decline. Why the dip? Underwriters may have overestimated long-term demand. While IPO shares of ZTO were snapped up at $19.50, there wasn't sufficient demand once the stock was traded on the open market. Now the stock is trading at about $14 per share.
Among the worst flops of 2016, Kadmon Holdings develops kinase inhibitors for autoimmune disease, fibrosis, and solid tumors. Shares began at $12 and then fell in early trading to almost $10. This company has been plagued by infamous owners. Sam Waksal, the company's founder and CEO until August 2014, pled guilty to and served jail time for charges including securities fraud, bank fraud, wire fraud, obstruction of justice, and perjury. His brother, Harlan Waksal, is now president and CEO of Kadmon. A year later, the company's stock is worth about $2.39.
THE BLACKSTONE GROUP
A company co-founded by so-called King of Wall Street Steve Schwarzman, Blackstone Holding's stock launched at $31 per share and lost 42 percent of its value during the first year. While some investors lept at the chance to own a piece of privately-held Blackstone Group, they may not have noticed that the company going public was in fact a spin-off called Blackstone Holdings. Though the IPO prospectus warned of uneven earnings in the upcoming several months or years, investors may not have been prepared for the hit Blackstone Holdings took after the credit market crashed. Now the stock trades between $10 and $15 just two years after its IPO.
Omeros is a Seattle-based biotechnology firm made famous for being the worst IPO flop of 2009. The company stock launched with a share price of $10, but of the 42 companies that went public that year stocks for Omeros dropped the most. Its failure was tied to fears triggered by a healthcare debate that was taking place in Congress at the time, as well as controversy tied to a fired chief executive who claimed the company was misreporting timekeeping records for grants from the National Institutes of Health. The company remains in business however, with its stock trading at about $16 per share.
Vonage once ruled more than half of North America's Voice over Internet Protocol (VoIP) market, but the reign didn't last long. Company shares launched at $17 in 2006, and Vonage took the unusual step of offering customers a chance to purchase shares through a special website. Bad idea. Customers who tried to buy the stocks online were told the purchase was unsuccessful, but after stock prices had plummeted, sinking 30 percent in the first week, they were told they owed the original price of $17 per share. As a result, outraged customers won a class action suit that translated into about $800,000 in fines and restitution.
Viggle is a social entertainment platform that rewards users who "check in" while watching live television, giving them get points to use for store discounts, gadgets, or t-shirts. The company's stock was one of the worst-performing of 2014, dropping 28 percent on the first day of trading. The company's hope was to raise about $50 million by selling 2.1 million shares at about $23.50. Instead, the shares went for about $8. Its stocks are currently at about 65 cents per share.
VeraSun was one of the largest ethanol producers in the United States, and it rose to prominence based on the promise of providing a cleaner source of energy than fossil fuels. Unfortunately, a market flooded with competitors and a surge in the price of the corn used to make ethanol crimped demand. Further hampered by the recession, the company filed for bankruptcy in 2008.
A New York-based financial services company, Refco went public in August 2005 offering shares at $22 each. About two months later, the company's chief executive officer, Phillip R. Bennett, was found to have hidden $430 million in bad debts from auditors and investors. The news caused share prices to plummet. Trading at more than $30 since launch, the shares lost almost two-thirds of their value and were last traded at $7.90. That same month the company filed for bankruptcy. The CEO, meanwhile, went to prison.
Known for offering daily deals, Groupon has legions of consumer fans. But three weeks after offering shares to the public at $28 in 2011, the value dropped about 40 percent. In late 2016, they took a steep nosedive again, dropping to just $3.94. What went wrong? One MIT study suggests that offering Groupon deals resulted in lower Yelp ratings and many restaurants and vendors felt an association with Groupon was bad for business.
A finance company that made lump-sum payments to buy life insurance policies and structured legal settlements, Imperial Holdings went public at $10.75 per share in 2011. Problems arose when the company's claims of profitability turned out to be false. Next came an FBI probe and raid of Imperial Holdings' offices. Amid all of this drama, shares dropped as much 75 percent before trading was ultimately suspended.
Described as one of the worst IPOs of 2009, Shanda Games is part of the Chinese media company Shanda Interactive Entertainment Ltd. An online gaming giant in China, the company went public at $12.50 per share and raised more than $1 billion, making it the biggest U.S. offering by a Chinese Internet firm at the time. Unwisely, the company increased the size of its offering at the last minute by 20 million shares over expectations. By the end of the first day of trading the stock price fell to $10.75.
Social media existed before Facebook in form of Theglobe.com, an online social networking service founded by two Cornell students that went public in 1998. Its IPO stock opened at $9 a share and then soared, ending the day at $65 -- a remarkable 606 percent gain. Alas, the company's demise was caused by the unprofitability of online advertising. A year later, the company's stock took a giant nosedive. By 2008, Theglobe.com was no more.
In 1998, GeoCities was the third-most visited site on the Web after AOL and Yahoo. On its first day of trading, this company's stock began trading at $33 and then rose by 120 percent. The beginning of the end came when Yahoo purchased the company in 1999. Yahoo is blamed for a series of missteps including introducing a pay-premium feature that allowed for exchanging the GeoCities neighborhood setup for a vanity URL. Not only did the move not generate much money, it weakened the GeoCities brand. In an effort to obtain further revenue from its investment, Yahoo cluttered GeoCities with banner ads. GeoCities eventually shuttered in 2009.
President Ronald Reagan's Surgeon General Dr. C Everett Koop was one of the founders of Dr. Koop, a predecessor to WebMD and other medical advice sites. At its height, DrKoop.com stock hit $45.75 a share. AOL even entered into a four-year partnership with DrKoop.com. But when the dot.com bubble exploded, investors fled. After losing tens of millions of dollars, the company shut down in 2001.
It only took 14 months for this company to succumb to the dot.com bust. A retailer of gardening products, the site sold more than 20,000 products from more than 60 suppliers. At its peak in 1999, the company's stock traded at $15. By the time Garden.com ceased operations, the stocks had plummeted to 9 cents per share. The company tried a variety of measures to stay afloat -- reducing operating expenses and adjusting marketing -- but nothing helped.
Electric power company Mirant went public in 2001 at $26 a share, and at its height reached $47. But by 2002 it had been named in an overcharging scandal and ordered by the Federal Regulatory Commission (FRC) to give partial refunds for electricity sold in California. That was just the beginning of the controversy tied to Mirant, which by 2002 was the subject of 14 lawsuits. The company was ultimately destroyed by the weight of its debts. In 2003, it filed for bankruptcy, resurfaced in 2005, and merged with Reliant to create Genon Energy.
A telecommunications company that was key in the Internet's development, Genuity had an impressive IPO. But after opening at $11, shares sank 20 percent within a matter of days. Unfortunately, the impressive IPO haul was not enough money to keep the company afloat. After defaulting on loans, it went bankrupt in 2000.
It's probably not a good sign when a company's stock plummets 20 percent on its first day of trading. That was just one of many signs that Lantronix was in trouble. Just before the IPO in 2000, the electronic monitoring device manufacturer scaled back its offering from 9 million shares to 6 million. Next, it slashed prices from $15 to $10. Not long after the IPO, the company's underwriter was caught up in a federal investigation tied to forcing an analyst to push the company's ill fated stock. Eventually, the company's shares were valued at 70 cents.
On its first day of selling, LastMinute.com gained 28 percent. Two weeks later, the online travel and leisure retailer's shares were headed in the opposite direction, making it another victim of the late '90s tech boom bust. When the company was ultimately acquired by Travelocity in 2005, investors were selling shares at a mere $2.75 each.