Figures in this article reflect prices as of market close on 11/21/2014 unless otherwise specified.
Alibaba (NYSE: BABA) made history in September, becoming the largest IPO of all time by raising $21.8 billion on the first day and over $25 billion after exercising the so-called “green shoe option” to increase the original deal size. By the end of the day of the IPO, the company was valued at $231 billion, more than Facebook (NASDAQ: FB)(STG: FB2A) or Amazon.com (NASDAQ: AMZN)(STG: AMZ) — and its market value has increased another 18% since then.
This prompted me to have a look at the biggest IPOs before Alibaba — to see how big these IPOs were compared to Alibaba, and to see how these companies and stocks have fared since they went public.
Below is a table of the 10 biggest IPOs of all time based on the size of the deal — plus an extra one, thrown in for free: Germany’s own Deutsche Telecom (ETR:DTE), which would rank No. 11 on the list.
|Company||Stock Exchange||IPO Year||Industry||Deal Size, $Bn||Market Cap at IPO, $Bn||Stock price change|
|ABC Bank (HKG:1288)||Hong Kong||2010||Financial||19,2||133||28%|
|ICBC Bank (HKG:1398)||Hong Kong||2006||Financial||19,1||132||86%|
|NTT Docomo (TYO:9437) (STG:MCN)||Tokyo||1998||Communications||18,1||65||36%|
|AIA Group (HKG:1299)||Hong Kong||2010||Financial||17,8||31||104%|
|Enel SpA (ETR:ENL)||Milan||1999||Utilities||16,5||55||-21%|
|General Motors (NYSE:GM)||NYSE||2010||Capital Goods & Services||15,8||50||-4%|
|Nippon Tel (TYO:9432)||Tokyo||1987||Communications||15,3||n/a||24%|
Sources: Deal size from Renaissance Capital; market capitalization from The Wall Street Journal and Bloomberg; price change from Yahoo Finance and S&P CapitalIQ; market capitalization for NTT is unavailable;
Stock price change based on 21/11/2014 prices, compared to close price on IPO day, adjusted for stock splits and dividends.
The list is a rather eclectic set of companies, including four financial services institutions, three telecom companies, two Internet-based “new technology” companies, a utility company and a car manufacturer. Also, Asia dominates the list: More than half of the top companies — and four of the five biggest ones — are based out of the continent.
A mixed bag of results
Let’s briefly look at the companies to see the development of their stock price between IPO and today.
No. 11 Deutsche Telecom had a few strong years after its IPO and at its peak in early 2000 investors had over 600% return compared to the IPO price. However, after the dot-com bubble burst, the stock came crushing down and it has never really recovered. Even though the stock price has almost doubled in the last two years, it is still only 65% above the IPO level after almost two decades.
No 10. Nippon Telegraph and Telephone Corporation (NTT) is the oldest company on the list — and one of the worst performing. Apart from a brief rally right after the IPO and a run-up of the stock price during the late nineties, the stock has consistently disappointed its investors. Between its peak in 1999 and its low in 2009 it has lost around 80% of its value, and even after some improvement in the last two years, it is still trading only 24% above the IPO price.
The IPO of No. 9 General Motors was a success insofar it represented the revival of an iconic automaker that went bankrupt during the 2008-09 financial crisis. However, during the last four years the stock price was most of the time below the IPO level — including 4% below the original price as of today.
No. 8 Facebook is often accused of having botched its IPO because after going public, the company lost more than half of its market value in less than four months. However, things have looked much better since mid-2013: the stock price has more than tripled and is today 93% higher than the IPO price in May 2012.
No. 7 Enel SpA is another disappointment for people investing in oversized IPOs. Over the 15 years since going public, the stock price of the Italian utility giant spent most of the time below the emission price. It is currently trading 21% below the IPO levels.
No. 6 AIA Group, the spin-off of AIG’s Asian life insurance arm, is one of the strong performers on the list: The stock price has steadily increased in the four years since going public and the stock has more than doubled in value.
No. 5 Visa — with the title of the biggest IPO for a US-based company in history — has by far the best results in the group. Similar to AIA, the stock value has continually increased over the years and investors who bought shares at the IPO have 372% returns.
No. 4 NTT Docomo didn’t do any better than the other two telecommunications giants. Similar to Deutsche Telecom, it had strong (over 150%) gains during the dot-com boom, followed by a sharp drop in the stock price. The stock has never recovered: As of today, it has only gained 36% since the IPO.
Both Chinese banks — No. 3 Industrial and Commercial Bank of China and No. 2 Agricultural Bank of China — dwarfed previous public offerings with market capitalizations well over $100 billion at the time of their IPO. The continuing growth of the Chinese economy helped the share price of both companies, and IPO investors can enjoy 86% and 28% returns respectively.
Is there anything we can learn from these mega-IPOs? Here are a few of my un-scientific observations:
- The bigger you are, the more difficult it is to grow: Most of these companies have uninspiring long-term returns. The ones with the best performance — Visa and AIA — are also the ones with the smallest market capitalization to start with. And while size is a major obstacle to very high returns, it is not a safeguard against losses, as several of the stocks have demonstrated.
- You can (usually) find a better entry point than the IPO price: Many of the companies had a brief rally after the IPO — but every one of the companies had a point during their life as a public company when the stock price was below the IPO levels. If you believe in the long-term potential of the company, it is often beneficial to wait as opposed to buying into a usually-overhyped IPO.
- Today’s darlings can easily become tomorrow’s laggards: Some of the worst performers on the list come from the telecom industry, which was one of the hottest industries two decades ago. It will be interesting to look back in 20 years at the performance of the behemoths of e-commerce (Alibaba) or social media (Facebook) and see whether they lived up to investors’ expectations.
My Foolish Conclusion
There is a lot of attention and excitement around mega-IPOs. However, am I more likely to invest in the next one after researching this article? In short: nope. The combination of the usual hype around a public offering, the starting size of such a company and the historically mixed results of mega-IPOs gives me pause. As such, I would be more interested in looking at some of the smaller IPOs as potential investment targets.
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Miklos Szekely owns shares of Facebook and Amazon.com. The Motley Fool recommends Amazon.com, Facebook, General Motors, and Visa. The Motley Fool owns shares of Amazon.com, Facebook, and Visa.