An initial public offering (IPO) is often described as a company's "coming out party." It's the moment when a successful, privately held business says, "Hey, world! Who wants a piece of the action?" If all goes well, investors scramble to buy the freshly minted stock, lifting the price through the roof and making lots of people happy — by which we mean filthy rich — in the process.
Then again, you can't really predict a party's outcome. What if nobody shows up? What if the caterer sneezes on the shrimp cocktail? What if the Jimmy Buffett cover band turns out to be the real Jimmy Buffett?
The same is true for IPOs. Sure, an IPO can bring an instant flood of capital, but it can also mean opening your company to greater public scrutiny, cranky shareholders and fickle market forces. For the following companies, their long-awaited IPOs proved to be DOA.
Read on to learn more about 13 of the biggest IPO flops of all time.
Launched in 1995, TheGlobe.com was one of the first big social media websites where members around the world could create, customize and share their own content.
In 1998, at the "anything goes" peak of the internet boom, TheGlobe.com founders floated the idea of going public, but then retreated, citing reports of a sagging online advertising market and a cooling of investor interest [source: Kawamoto]. A month after their initial pullback, they decided to go for it, a decision that paid off handsomely — at first.
The IPO stock was offered at $9 a share and skyrocketed to $97 before closing at $63.50 by the end of the trading day, marking the largest single-day gain to date — an incredible 606 percent.
But the party didn't last. The darling of the IPO world soon became the poster child for the dot-com implosion. When the bottom fell out of the online advertising market in 2000, TheGlobe.com scrambled to find new backers and an alternative business model. By 2001, it had cut half its workforce and sold its major web properties [source: Shim].
In 2022, the company still existed as a shell on the OTC bulletin board, trading at 10 cents per share.
12. Shanda Games
In China, Shanda Games was synonymous with the hugely popular online gaming market. A division of Shanda Interactive Entertainment, the company produced the multiplayer online role-playing game "Legend of Mir" and managed the Chinese version of the online fantasy hit "Aion" [source: Reuters].
Following in the footsteps of other Chinese companies, Shanda planned a big coming out party with a U.S. IPO in September 2009. The company snagged the catchy ticker symbol (GAME) and hired heavy hitting underwriters J.P. Morgan and Goldman Sachs to set the IPO price and determine the number of shares to offer.
Feeling the time was ripe for a big payday, the underwriters bumped up the total number of shares from 63 million to 83.5 million at the last second [source: Petruno]. Then they set the opening share price at $12.50, the very highest end of the pricing spectrum.
The result appeared to be a bonanza, raising a total of $1.04 billion, the largest American IPO of 2009 [source: Petruno].
Unfortunately, it turned out that the underwriters had gotten greedy. By pushing the price to the limit, they sucked up all the investors willing to pay top dollar. With no new investors left to prop up the price, the stock took a huge and immediate loss of 14 percent, finishing the next day down $1.75, one of the worst IPO debuts of the year [source: Petruno].
Shanda is no longer a gaming company, but has successfully pivoted to an investment and asset management firm.
Back in 2006, the internet telephony company Vonage ruled almost half the North American Voice over internet Protocol (VoIP) market [source: Frommer]. But marketing and managing all of those online phone lines turned out to be quite expensive and Vonage was losing money every quarter — lots of money [source: Jennings]. Meanwhile, major telecommunications and cable companies were gearing up to offer VoIP products of their own, representing the first real threat to Vonage's dominance. To raise some much-needed cash, Vonage execs decided to go public May 24, 2006, offering shares at $17 a pop. On the surface, it looked like a success, having raised $531 million in quick capital [source: Reardon].
But this wasn't your normal IPO. Usually, IPO shares are shopped around to investment firms and individual big-ticket investors who do business with the underwriter. Vonage took the unusual tactic of offering 13.5 percent of its IPO shares directly to Vonage customers, who could buy the shares online through a special website created by the underwriting firms [source: Reardon].
In an ironic twist, the high-tech company was undone by a technical snafu. When excited Vonage customers tried to buy stock online, many were told that the purchases didn't go through. Then, a few days later, after the stock price had dropped considerably — it lost 30 percent in the first week alone — the customers were told that their purchases had gone through and that they owed the original stock price of $17 a share. Oops.
The angry customers won a class action suit against the underwriters, which came to roughly $800,000 in fines and restitution [source: Shwiff]. The botched IPO inspired a second lawsuit against Vonage for misleading investors [source: Reardon]. All in all, this wasn't the smoothest coming out party for Vonage.
The company still provides residential and business phone services as well as cloud-based communications. Sales were over $1 billion in 2021. That same year, mobile phone company Ericsson announced it was buying Vonage for $6.2 billion.
Few dot-com flameouts were as public and well-publicized as Pets.com. Pets.com was one of four (yes, four) online pet stores that arose during the internet boom of the late 1990s. Pets.com made its name through a witty advertising campaign featuring an exuberant stoner-dude sock puppet and the slogan, "Pets.com. Because pets can't drive." The sock puppet was so popular it was turned into a balloon for the 1999 Macy's Thanksgiving Day Parade.
Blind to the fact that pet supplies made for lousy online sales (imagine the shipping costs on a 50-pound or 23-kilogram bag of dog food), Pets.com attracted big-name investors like Amazon.com, which came to own a 30 percent stake in the San Francisco-based company.
Pets.com had its IPO in 2000 and raised an impressive $82.5 million, but that wasn't anywhere near enough to make up for a leaky business plan. The stock went from a high of $14 per share at the IPO to a low of 22 cents a share [source: Wolverton]. In the end, the company tried selling sock puppet replicas and memorabilia, but even their famous mascot couldn't save them.
Only nine months after its IPO, Pets.com went to doggy heaven. The domain name now redirects you to Petsmart.com.
9. Wired Ventures
The original new media company, Wired Ventures began with a mission to chronicle the emerging information economy from its insider's perch in San Francisco, beating the brick-and-mortar media establishment to the important, underground stories.
Built around the award-winning reporting and design of its print magazine Wired, the company grew to include HotWired and Wired News, which became the online arms of the magazine, book publishing company HardWired and an MSNBC show called Netizen.
Although the original 1993 business plan projected a lean staff of 22, Wired Ventures bulged to 338 employees by 1996 and was losing nearly $8 million a year [source: Useem]. Even though it was hemorrhaging money from each of its ventures, Wired believed it was riding the same unstoppable wave as the rest of the high-tech industry.
And so did the banks. When Wired Ventures hired underwriters to assess its value for a planned IPO in 1996, they came up with the ridiculously high figure of $447 million [source: Useem].
Company execs came to their senses and called off the IPO when internet stocks took a sudden, although temporary dip. The founders would try and fail with another IPO in 1998 before the company was wrested from them in a hostile takeover and sold to Advance Magazine Publishers, Inc., parent company of Condé Nast, in 1998 [source: Wired].
Webvan.com was almost too good to be true. Customers in seven major U.S. cities could sit at their computers, order a large (or small) amount of groceries and have them delivered to their door in 30 minutes or less. For city folks, who were sick and tired of struggling to find parking or lugging overstuffed grocery bags on overstuffed buses, Webvan was a godsend.
Unfortunately, it was also a financial pipe dream.
Launched in 1997, Webvan went public in 1999 and raised $375 million in the process. Yet even with this cash — plus an incredible $1 billion from private investment firms like Sequoia Capital — the company couldn't become profitable [source: Himelstein].
Analysts blame several factors for Webvan's demise, not the least of which was the great expense of building its gee-whiz automated warehouse infrastructure. Each 300,000-square-foot (29,000 square-meter) distribution center cost $25 million to build and employed 16 people (and 1,000 servers) just to handle the back-end technology [source: Himelstein]. It ended up costing the company $27 per order just for processing and delivery.
In a last ditch effort to save money, Webvan.com drastically cut the variety of products it offered on the site, which alienated loyal customers and brought sales to a screeching halt — just in time to declare bankruptcy in 2001, a mere 18 months after its triumphant IPO.
At the height of its awesomeness, Kozmo.com made you believe that the internet would indeed solve all of our problems. Kozmo was a movie rental and snack delivery service operating in 10 U.S. cities with the ridiculously beautiful promise of delivering your DVD and munchies in less than an hour with no minimum purchase — and no tipping!
If you didn't live through the heady dot-com era, it's hard to understand how a company like this ever thought it would make a dime. Private investors even shelled out $280 million to help fuel its rapid growth — and its armada of Day-Glo orange delivery scooters [source: German].
Kozmo filed plans for an IPO with the Securities and Exchange Commission in March 2000, but had to back down when the market began its slippery descent. The same day that Kozmo announced the postponement of its IPO, it laid off 24 employees, representing the first wave of massive layoffs that would eventually decimate the company, which at its height employed over 2,000 people [source: Sandoval].
Kozmo tried to save itself by requiring a minimum order of $10 (because each delivery cost them $10), but even that couldn't save it. Like Webvan, Kozmo proved that popularity and a huge and loyal following doesn't always lead to profitability.
Like Pets.com and Wired Ventures, eToys.com was a late-'90s juggernaut that suffered from a wicked case of internet-age hubris. eToys, an online purveyor of — you guessed it — toys, dismissed brick-and-mortar competitors like Toys R Us as stodgy and slow to adapt to the online marketplace.
The eToys website was loaded with features like in-depth toy reviews, recommendations sorted by age, parenting and baby advice columns, and email newsletters. And their TV commercials, featuring Israel "Brother Iz" Kamakawiwo'ole's now-famous rendition of "Somewhere Over the Rainbow," helped solidify the brand.
Unfortunately, eToys.com fell victim to some of the same logistics problems that plagued Webvan and Kozmo. eToys had to build a massive and hugely expensive infrastructure from the ground up to be able to stock and deliver such a wide variety of toys to so many people.
Riding the wave of dot-com IPOs, eToys went public in May 1999 at $20 a share and skyrocketed to $85 a share on its opening day [source: CNN Money]. But it took a huge public relations hit that same Christmas, when a bunch of orders failed to arrive by Christmas morning. In response, it built two more huge warehouses to deal with an expected increase in demand in 2000, which never materialized [source: Gentile].
Steve Schwarzman, co-founder and CEO of the Blackstone Group, is the kind of oversized billionaire spendthrift that only Hollywood — or in this case, Wall Street — could create. For his 60th birthday party, the so-called "King of Wall Street" threw himself a multimillion-dollar bash starring Martin Short, Rod Stewart and Patti LaBelle leading an entire church choir singing "He's Got the Whole World in His Hands" [source: Gross].
Blackstone is a private equity firm specializing in leveraged buyouts (LBO), or hostile takeovers. Schwarzman and his business partner Peter G. Peterson have been buying and flipping struggling companies since the 1980s with the help of lots of cheap, available debt. The typical LBO purchase is 10 percent cash and 90 percent debt.
Private equity firms are notoriously... well, private. So, it surprised many investors when Blackstone announced plans to go public in 2007. Unfortunately, in the rush to get a piece of this Wall Street wonder — Blackstone's funds have averaged a 23 percent annual return since 1987, twice the S&P 500 average — investors overlooked the odd details of the deal [source: Jubak].
First of all, the company being offered was a spinoff of the Blackstone Group called Blackstone Holdings. This spinoff didn't represent the vast earnings of Blackstone's investments, only the chunk of the company that managed those investments. Blackstone Holdings only took in $2.3 billion a year in fees, but the IPO underwriters still valued it at $40 billion [source: Jubak].
But the biggest problem — and something that Schwarzman and his Blackstone insiders undoubtedly foresaw — was that the bottom was about to drop out of the credit market, drying up the easy debt needed to make LBOs. In the IPO prospectus, Blackstone warned of uneven earnings over the next couple of months or years, but few people paid attention.
The result: Blackstone raised $4.1 billion with the IPO, Schwarzman and his co-founder Peterson pocketed $2.6 billion, and investors ended up with a stock that lost 42 percent of its value during its first year [source: Kelly]. Blackstone's stock price dropped as low as $4.42 in 2008, but was trading at more around $120 per share in early 2022. Still led by Schwarzman, Blackstone (now a C-type corporation) continues to be world's largest private equity firm.
Seattle-based biotechnology firm Omeros holds the dubious distinction of having the worst IPO flop of 2009.
The company was in stage III trials for a drug that claimed to improve joint function and ease pain after arthroscopic knee surgery [source: Timmerman]. Executives were hoping that a cash infusion from the IPO would carry them through until the drug got approval from the Food and Drug Administration (FDA).
Omeros went public Oct. 7, 2009, and raised $62 million on a share price of $10. Unfortunately, of the 42 companies that went public that year, Omeros' stock plunged the farthest the fastest in the weeks following its IPO [source: Timmerman].
It didn't help matters that right before the scheduled IPO, in which Omeros originally hoped to raise $80 million, an ousted chief executive accused the company of fudging timekeeping records for National Institutes of Health (NIH) grants [source: Timmerman]. As of 2022, Omeros is still in business but still a risky investment [source: Yahoo Finance].
Facebook is one of the most successful (if controversial) companies in the world. Now known as Meta, the company attracts 2.9 billion active monthly users to Facebook, which is only one part of its wildly profitable social media portfolio that includes Instagram and WhatsApp [source: Statista].
It's hard to imagine that back in 2012, Facebook's future was very much in question after its historically awful IPO. May 18, 2012, was supposed to be a hugely positive (and profitable) day for Mark Zuckerberg and his social media company, which boasted 900 million users at the time and seemed poised for world domination. In the days leading up to the IPO, analysts were bullish that Facebook would enjoy the same "IPO pop" as other tech companies with its share price skyrocketing on opening day [source: Safdar].
But ironically the tech company's debut was marred by technical glitches. Because of a time delay between Nasdaq's opening bell and when investors could actually start buying Facebook shares, a lot of trades didn't go through or were billed at the wrong share price. As a result, the stock never budged above its opening share price of $38 [source: Pepitone].
Even worse, rumors began to circulate that Facebook had shared info with large banks about its earning potential that wasn't shared with investors at large. That led to lawsuits, which lowered the share price even further. After five days of trading and a 16 percent drop in share price, one Bloomberg analyst called Facebook the worst-performing IPO of the decade [source: Tam].
Although the IPO may have flopped, Facebook certainly didn't. As of January 2022, its share price reached around $330, nearly 10 times its original valuation.
When Casper launched in 2014, the mattress industry was ripe for disruption. Instead of selling dozens of overpriced models in large showrooms, Casper offered customers a reasonably priced, comfortable mattress delivered right to their doors. The "mattress-in-a-box" concept was an instant hit and attracted hundreds of millions of dollars from venture capitalists and angel investors.
It also attracted lots of copycats. In the six-year span between Casper's launch and its 2020 IPO, 175 "mattress-in-a-box" companies flooded the market (from 2015 to 2018, new mattress companies launched at a rate of one per week) [source: Griffith].
To beat back the competition, Casper invested heavily in marketing and advertising campaigns, which cut into its bottom line. By the time Casper was ready to go public in 2020, its finances were still deep in the red and analysts had adjusted its one-time valuation of $1.1 billion down to $705 million [source: Valinsky].
Days before the IPO, Casper slashed the target share price from a high of $19 down to as low as $12 [source: Valinsky]. On the first day of trading, Casper's share price opened at $14.50 and ended at $13.50, earning the once-billion-dollar company a valuation of less than $500 million, showing that investors are hesitant to back companies without a proven record of profitability [source: Griffith].
The ride-hailing app Uber was the mother of all tech disruptors. When the service debuted in 2011, it downed the taxi industry in one fell swoop and introduced a whole new gig-economy job: Uber driver.
Uber never had a hard time attracting investors. By late 2018, private investors had poured in enough money to value the company at $76 billion. But as Uber prepared for a 2019 IPO, its top execs had a much higher target figure for the company's stock market debut: $120 billion [source: Isaac, et al.].
At least that's the number that underwriters at big banks like Morgan Stanley and Goldman Sachs told Uber it was worth, which would have made it the largest IPO in Wall Street history. Instead, Uber took home a far more ignominious prize: the record for losing the most money on its IPO [source: Pflanzer].
In the weeks leading up to the May 9 IPO, Uber lowered its expected value from $120 billion down to $100 billion. Then, with days until the IPO, the company proposed a target range of $44 to $50 a share, which valued the company at just $91 billion [source: Isaac, et al.].
By the day of the IPO, investors were rattled by a terrible earnings report from Uber's chief U.S. competitor Lyft, and news of the rise of well-funded ride-hailing companies in Latin America and China. The Friday IPO opened with the stock trading at $45, the low end of what Uber was hoping to get, but instead of rising steadily throughout the day, Uber's stock sunk 6.7 percent by closing.
For investors who had bought Uber stock at $45, they lost a cumulative $655 million in one day, the single biggest dollar loss for an IPO since 1975 [source: Pflanzer]. It also gave Uber a market capitalization of $69 billion, considerably lower than its $120 billion dreams.
In 2022, Uber is still trading in the $40s and riding the ups and downs of the pandemic economy. In November 2021, it announced its first profitable quarter ever, according to Reuters.
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