IPOs looking anemic

The urban delivery service joined the ranks of some two-dozen companies that either postponed or withdrew plans to go public. It would seem a paradox.

Just a few weeks ago, many market commentators believed the IPO market had shrugged off its springtime blahs and would be ready for a new surge. Yet, as results indicate, August was anything but stellar in terms of both the quality and performance of many new issues.

Of the 67 new issues priced through Aug. 22, the average first-day gain was an anemic 28 percent. In contrast, a typical IPO completed in July gained on average over 57 percent on its first day of trading. Furthermore, no less than 16 IPOs completed last month, or more than one-quarter, are trading under their offer price.

While that total is far less than the sour results of IPOs completed last February and March--40 of the deals priced in February and 38 of those priced in March are now "under water"--it still demonstrates a significant weakness for a segment of the recent issues. Moreover, almost half of last month's crop of issues are currently trading under their first-day closing price, a cost most retail investors pay because they are still, for the most part, frozen out of "hot deals."

One reason for the lackluster performance of recent deals is that many have been recycled. Earlier this year when the Nasdaq Composite headed south from the 5000 mark to the 3000 level, issuers and bankers were hastily pulling deals off the calendar.

Many of those issues that were yanked in the spring resurfaced in the summer in a trimmed-down fashion: less shares, lower price. But while a reduced physique may be appealing on beaches and boardwalks, in the trading pits and chat rooms a cut in an IPO's shape may be fatal.

As one sign of how poor the state of the IPO market is in some corners, consider the plight of PeoplePC. The ISP debuted at $10 Aug. 16 and within a week of trading saw its shares tumble by over 40 percent, establishing itself as one of the worst-performing IPOs in its initial week of trading.

PeoplePC is not alone. Of the 10 worst-performing IPOs in their first week of trading, no less than seven have come to market in the past eight months. Among these include ImproveNet, whose shares slid over 42 percent by the close of its first-week as a public company; Asiacontent.com, which dropped some 45 percent in its first five trading days; and GoAmerica, which trimmed some 47 percent in value in its first week.

These results stand as testimony to the precarious state of investing in new issues. Of the approximately 360 new offerings this year, more than 40 percent are trading under their offer price. Of those, almost one-third are off by 50 percent or more.

Results like these make Treasury bills appealing.