The effect leaving money on the table at IPO has on future performance for Tech companies Written by Darren Clarke 1720642 MBA Finance Dublin Business School May 2015 Title: The effect leaving money on the table at IPO has on future performance for Tech companies Research Question: Does leaving money on the table at IPO for Tech companies help or hinder future performance? Publication date: May 22nd 2015 Author: Darren Clarke Supervisor: Andrew Quinn Level: MBA in Finance Number of words: 19,987 excluding Title Page, Table of Contents, List of Tables/Charts, and Bibliography Number of pages: 132 Keywords: LinkedIn, Facebook, Twitter, GoPro, Alibaba, Box, Intial Public Offering (IPO), under pricing, money left on the table, technology sector, social media, share price, quantitative study Table of Contents LIST OF TABLES/CHARTS ACKNOWLEDGEMENTS ABSTRACT CHAPTER 1: INTRODUCTION 10 CHAPTER 2: LITERATURE REVIEW 12 2.1 Initial Public Offering Description and Purpose 12 2.2 Under-Pricing and “Money left on the table” 13 2.3 LinkedIn: Company Background and IPO reaction 15 2.4 Facebook: Company Background and IPO reaction 18 2.5 Twitter: Company Background and IPO reaction 24 2.6 GoPro: Company Background and IPO reaction 28 2.7 Alibaba: Company Background and IPO reaction 31 2.8 Box Inc: Company Background and IPO reaction 37 2.9 Summary 41 CHAPTER 3: RESEARCH METHODOLOGY 42 3.1 Introduction 42 3.2 Research Questions 42 3.3 Proposed Methodology 43 3.4 Research Philosophy 43 3.5 Research Approach 46 3.6 Research Strategy 47 3.7 Research Choice 48 3.8 Time Horizon 49 3.9 Data Collection Method 50 3.10 Sampling Selection 50 3.11 Research Ethics 52 3.12 Research Limitations 52 CHAPTER 4: DATA ANALYSIS, 53 4.1 Introduction 53 4.2 LinkedIn: Post IPO Share Price Analysis 53 4.3 LinkedIn: Market Comparison Analysis 63 4.4 LinkedIn: Summary 65 4.5 Facebook: Post IPO Share Price Analysis 66 4.6 Facebook: Market Comparison Analysis 74 4.7 Facebook: Summary 74 4.8 Twitter: Post IPO Share Price Analysis 76 4.9 Twitter: Market Comparison Analysis 80 4.10 Twitter: Summary 83 4.11 GoPro: Post IPO Share Price Analysis 84 4.12 GoPro: Market Comparison Analysis 88 4.13 GoPro: Summary 88 4.14 Alibaba: Post IPO Share Price Analysis 89 4.15 Alibaba: Market Comparison Analysis 91 4.16 Alibaba: Summary 91 4.17 Box: Post IPO Share Price Analysis 93 4.18 Box: Market Comparison Analysis 93 4.19 Box: Summary 93 4.20 Comparison of all Companies 96 CHAPTER 5: CONCLUSIONS 106 CHAPTER 6: RECOMMENDATIONS FOR FUTURE RESEARCH 110 CHAPTER 7: REFLECTIONS ON LEARNING 111 BIBLIOGRAPHY 116 List of Tables/Charts Table 1: Overview of Companies’ IPOs P14 Table 2: LinkedIn – Price Movement after Earnings Reports P55 Table 3: Facebook – Price Movement after Earnings Reports P66 Table 4: Twitter – Price Movement after Earnings Reports P76 Table 5: GoPro – Price Movement after Earnings Reports P84 Table 6: Alibaba – Price Movement after Earnings Reports P89 Table 7: Price/Earnings for each company P96 Table 8: Price/Book ratio for all companies P98 Table 9: Price/Sales ratio for all companies P99 Chart 1: LinkedIn Share Price History P54 Chart 2: LinkedIn Share Price for Q2 2011 - Q1 2012 P57 Chart 3: LinkedIn Share Price for Q2 2012 - Q1 2013 P58 Chart 4: LinkedIn Share Price for Q2 2013 - Q1 2014 P61 Chart 5: LinkedIn Share Price for Q2 2014 - Q1 2015 P62 Chart 6: LinkedIn Market Comparison Analysis P64 Chart 7: Facebook Share Price History P68 Chart 8: Facebook Share Price for Q2 2012 - Q1 2013 P70 Chart 9: Facebook Share Price for Q2 2013 - Q1 2014 P72 Chart 10: Facebook Share Price for Q2 2014 - Q1 2015 P73 Chart 11: Facebook Market Comparison Analysis P75 Chart 12: Twitter Share Price History P77 Chart 13: Twitter Share Price for Q4 2013 - Q2 2014 P79 Chart 14: Twitter Share Price for Q3 2014 - Q1 2015 P81 Chart 15: Twitter Market Comparison Analysis P84 Chart 16: GoPro Share Price History P86 Chart 17: GoPro Market Comparison Analysis P87 Chart 18: Alibaba Share Price History P90 Chart 19: Alibaba Market Comparison Analysis P92 Chart 20: Box Share Price History P94 Chart 21: Box Market Comparison Analysis P95 Chart 22: All Share Price since May 2011 P101 Chart 23: Price Movement after IPO - Year P102 Chart 24: Price Movement after IPO - Years P103 Chart 25: Price Movement after IPO - To date P104 Acknowledgements First and foremost, I would like to express my gratitude to my supervisor Andrew Quinn I wish to thank him for all the time and effort he has spent guiding me throughout the dissertation He has imparted his knowledge and experience of financial markets as my lecturer of International Financial Institutions and Markets His enthusiasm and interest aided me in the completion of the dissertation Many thanks go to all other lecturers and staff in Dublin Business School who transmitted their knowledge help and assistance throughout completing the MBA in Finance The facilities provided by Dublin Business were also a significant help during my studies Thank you to my fiancée Amy who has supported me lovingly throughout my time studying at Dublin Business School She has been there for me during stressful times before exams and meeting deadlines and I would not have been able to it without her love and understanding I would also like to thank my father Sean for supporting me throughout my life and giving me the opportunity and encouragement to further myself through education and help me become a better person Special thanks go to all staff at Mohill Computer Training and Mohill Enterprise Centre who provided learning of computer skills that aided my development through my studies I would also like to thank them for assisting me with printing and binding for my dissertation To all the people who contributed directly or indirectly to this dissertation, many thanks Abstract The definition of a successful Initial Public Offering (IPO) is a point of fervent debate among analysts in the financial sector Many analysts are of the opinion that a successful IPO is defined by the size of the IPO pop in price on the first day Other analysts believe that if there is a large pop in price then money is left on the table as the company under prices the IPO and misses out on potentially raising more money This is even more prevalent when a company is in a new industry like technology, social media or internet Companies in these industries are new and often have no profits but a rapidly expanding user base with the possibility of large future revenues and profits These companies are difficult to value using traditional revenue or profit based metrics Therefore pricing an IPO is more difficult for these types of companies and their IPOs are often under priced in the hope of a pop The purpose of this study is to investigate whether an IPO pop is beneficial in the long term to companies in aforementioned industries This study focuses on the following companies that went public between 2011 and 2015; LinkedIn, Facebook, Twitter, GoPro, Alibaba and Box Inc To implement this study, data was collected from the share price of each company after their IPO Their performance is measured against one another and analysed in tandem with the amount that each company under priced their IPO The results indicate that although an IPO is an important part of a company’s growth and has an impact in the short term, the longer term share price is affected by revenues, profits and growth prospects that are announced at earnings reports Therefore leaving money on the table does not help share price performance in the long term Chapter 1: Introduction Initial Public Offerings (IPO) consistently provide an air of excitement and occasion within the finance community An IPO is a significant stage in a company’s growth, raising considerable capital to fund future growth They are additionally regarded as a long awaited “payday” for the founders, venture capitalists and angel investors who gain significantly from their investment of innovation, expertise and resources Social Media sites, such as LinkedIn, Facebook and Twitter have revolutionised the world, particularly how people connect and communicate with each other Hundreds of millions of people across the globe utilise these sites daily, accessing real time news, researching employment opportunities and promoting organisations, such as businesses, sports clubs and charities Such sites are now an integral part of how the world communicates, both socially and professionally Naturally, this intense level of global interest in Social Media sites generates immense interest and excitement when these companies go to IPO Such interest flows not only through the financial community, but across society in general Other technology companies such as Alibaba, Box and GoPro are new companies that have also excited investors and consumers alike Alibaba is a Chinese internet company that has billions of sales in China and is moving towards USA GoPro has taken the personal camera market by storm after smart phones had made many personal cameras obsolete Box is an innovative company in the new cloud storage industry Therefore this research study will be of interest to a wide section of society, providing benefit to many, including shareholders and managers in pre-IPO companies, investors who trade shares at IPO’s and organisations dealing generally with 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