Since Alibaba (BABA) is still dominating the news, I figured I would keep the ball rolling with a follow up to yesterday’s post explaining the Alibaba IPO and whether you should buy it. I suggested buying the stock when it reaches the low $80’s, which looks on track as it has been dropping steadily below $90 today to hit $87.
While you can’t really make investing decisions based on how other stocks have performed, I thought it would be interesting to evaluate the Alibaba IPO in light of how other internet companies have performed since their IPO. To do so I bring you the first official The Day Tradette infographic! I compared the opening market prices of 8 internet IPOs (a mixture of internet marketplaces and social networking sites to mimic Alibaba’s operations) to see how much you would have today had you invested $1,000 in each IPO.
I chose to compare each company’s current price to the price it opened at on its IPO day rather than its IPO target price. As I explained in yesterday’s post, the IPO target price (in Alibaba’s case, $68) is the price offered to institutional investors. By the time an IPO is available to investors like you and me, the pent up demand for the stock typically drives the price much higher than the initial IPO price (in Alibaba’s case, it began trading at almost $93 Friday morning).
I found it interesting that the best investment in this group would have been Amazon (AMZN). I had assumed the best return for an internet IPO would be Google. If you had invested $1,000 in Amazon on the morning of its IPO, it would be worth $11,130 now! That’s over an 1,000% return. That’s also good news for Alibaba investors, since I would argue Amazon is the closest comparison to Alibaba.
If you had invested $1,000 in the top 3 performing IPOs, your investment would be worth $23,000, for a 600%+ return. But even if you had invested in all 8 of these companies, with varying rates of return, you would see a 263% increase on your investment and your $8,000 would be worth $29,000 today. I don’t know of any hedge fund that promises those returns.
Those returns come with a very big caveat though. You’ll notice some of these IPOs date back to 1996, and actually realizing the big returns would have required a ton of patience. For example, Amazon stayed below $100 until 2009, 12 years after its IPO. And Facebook (FB) plummeted shortly after its IPO to hit a low of $18, only bouncing back to its IPO price in mid-2013.
Personally, I bought Facebook at the IPO but didn’t have the patience to see it through and sold at a loss. I bought it again around $26 but sold pretty quickly for a small profit because I was scared of getting burned again. I regret that trade (actually, almost all of my trade regrets are that I didn’t hold the investment long enough) and so I’m now trying to focus on more long term trades. If nothing else, this infographic shows the potential value of holding on to your position and not selling out of fear.