1. The people who got subscriptions to the stock at $26 a share sold out at $45 to $50 a share and made a ton of money. This was not you and me, but institutional investors and big money players.
2. The insiders in the company, who are paid in stock, now are worth Billions, at least on paper. To cash out, they will have to sell their shares, over time. Most are locked out from selling for 180 days. Wait until that day comes....
3. The small investor bought at $45 a share and up on the first day. Some paid as high as $50 a share!
4. We are ONLY ON DAY TWO and the stock has tanked by 7.24% from its close yesterday. That's a heck of a drop from the pop! A few more days of this, and it ain't gonna be pretty.
5. If you were unfortunate enough to pay nearly $50 a share (as some did), your shares are now worth about $41. You just lost 18% of your investment, overnight.
Gee, wish I invested in that IPO.
Groupon's model was copied by others and the product turned out to be a fad. The share price is rising in recent months, but the company is still losing money (-14 cents a share). Where is this going?
2. ZipCar: ZipCar at least sold a physical product - car rentals - and was more than a mere website. Problem was, car rentals are a capital-intensive business, and a costly one as well. ZipCar never made any money to speak of, and the stock price tanked, after the IPO. Again, look at the chart below and the cart above - do you see a pattern here?
Bottom line on ZipCar: The small investors who bought at the IPO price lost their shirts - again in a market where the DJIA was skyrocketing. Are IPOs a great investment? No.
3. Zynga: Zynga was another dot-com stock that went ballistic at the IPO, largely because of the anticipation of the Facebook IPO. But like Facebook, it did a face-plant as well:
Again - and this is important - it is very hard to make money by buying a stock and then having it lose more than half its value. And with no profits (and no dividends) there isn't even income to fall back on.
4. Facebook: Facebook is one success story of the lot (sort of), even with the "botched" IPO. But whether this makes any sense as a long-term investment remains to be seen. Facebook is showing profits, finally, of 41 cents per share. This gives it, at the present share price, a P/E ratio of 116.
Is that a good P/E ratio? Some analysts like to say things like "Well in the tech sector" (as if a website was 'tech') "a P/E ratio of 100 to 200 is acceptable."
But P/E ratio represents the number of years you'd have to wait to make your money back on this stock. In other words, 116 years. Facebook is profitable, yes, just not that profitable. In order to show a more reasonable P/E ratio, Facebook either has to increase profits by a factor of five, or the share price has to decrease by a factor of five. You pick.
Since it has little in the way of profits, and little in the way of assets, there is no "there" there in the company. You have to hope that someone dumber than yourself will pay even more for the stock, over time. It is possible that someone could "buy the company" but at these prices, no one could afford to.
The Facebook experience shows that profits do matter. Facebook's IPO face-planted largely because the profitability of the company was in question. Once the profits went up, so did the stock price. Twitter, losing 30 cents a share, better figure out how to make money - and fast.
In other words, you are waiting for a greater fool than yourself to buy the stock.
Tech stocks and dot-com stocks are very volatile - and usually over-valued. Investing in the tech sector is not for the faint of heart - or the small investor.