2011 IPO Rhythm: Pop & Fizzle

One of the ways investors torture themselves is by speculating how much an investment would be worth today if they had bought stock in a company when it was in its infancy. You've heard it before. Someone will say he "almost" bought Google (Nasdaq: GOOG) for around $100 a share during its initial public offering in 2004. Google is now selling for around $640 a share.

Or take Apple Inc. (Nasdaq: AAPL), which went public on December 12, 1980, at $22 a share. The stock has split three times since the IPO, so on a split-adjusted basis, the IPO share price was $2.75. The stock is now selling for more than $400 a share. The total appreciation: around 14,736.4%.

But separating an Apple or a Google from a company like the late Pets.com is no easy task. Pets.com, arguably the poster child for the original dot-com bust, launched in August 1998 and went from IPO to liquidation in 268 days. Its lifespan was more than three times as long as Kim Kardashian's ill-fated marriage, but it was hardly long enough to create happy investors. After raising $82.5 million in its IPO and airing a $1.2 million Super Bowl ad starring its sock puppet mascot, the company went out of business without making a penny in profit.

The fact is that investing in IPOs is always a gamble, and even savvy investors can get burned. The flip side is that even market novices can get lucky and cash in big from modest investments in startups. But you can make that same argument about lottery tickets.

Still, IPOs tend to generate enough buzz to take stocks from staid to sexy. The global IPO market produced 334 offerings in 2011, according to a new report from Renaissance Capital of Greenwich, Conn. That's down 30% from 2010, but "against the dismal backdrop of the downward spiraling euro-zone, a moribund US economy and heightened market volatility," the 2011 total was "remarkable."

In the US, 24 Internet companies went public -- the most to do so in more a decade. Four of the five largest-ever US Internet IPOs -- Bankrate (NYSE: RATE), Groupon (Nasdaq: GRPN), LinkedIn (NYSE: LNKD), and Zynga (Nasdaq: ZNGA) -- raised $2.4 billion.

Worldwide, luxury brands such as Prada, Ferragamo, and Michael Kors also completed IPOs. And both private equity-backed IPOs and venture-based activity were strong.

But before you start thinking you missed out on all the action, consider this. "The global IPO market collapsed in August, resulting in the worst IPO returns since 2007," Renaissance says. IPO performance declined across the board, with US offerings significantly underperforming the S&P 500. Average US IPO returns this year were an unspectacular minus-11.8%. That's not as bad as 2008, when they lost 33%. But it's nowhere near the heady days of 2004, when US IPO investors reaped an average return of 34.6%.

Things were just as bad -- worse, actually -- in other parts of the globe. Demand for US-listed Chinese IPOs evaporated in response to evidence of financial fraud, improprieties, and misrepresentation. And the average global IPO return was minus-12.2%.

Of course, there were a few winners. GNC (NYSE: GNC) has climbed 74% from its IPO in March. Tesoro Logistics (NYSE: TLLP), an MLP formed by Tesoro Corporation in 2011 to own, operate, develop, and acquire crude oil and refined product logistics assets, has jumped 59% since April. And LinkedIn is up 46% since May.

Overall, however, it was a volatile year for IPOs, with anticipation and speculation fueling huge initial gains that markets failed to sustain. How did things shake out in the past 12 months?

Click the image below for a slideshow of key takeaways about the IPO market.

Down, Down, Down

Global IPO performance declined, and US IPOs significantly underperformed the S&P 500.