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7 tech IPOs that investors 'unfriended'

Nikhil Pradhan | May 24, 2012
For the past week, it has been impossible to search for the word "IPO" in Google and not be inundated with stories on the Facebook's debut on the stock market.

3. Vonage

For the uninitiated, Vonage is one of the largest players in the VoIP industry. In May of 2006, Vonage went public with a share price of $17 raising about $530 million. What made Vonage's IPO unique was that it approached its customers to be the initial investors and offered to sell them the company's shares. Many of Vonage's customers accepted and sent in their orders for the company's shares.

Since you've gotten this far in the article, you know the story will not take a turn towards sunshine and daisies. Vonage's shares took a beating on the very first day and dropped almost 13% below the offer price. The share price has almost continuously slid since then and is now resting at $1.70, a drop of 90% in six years.

The Vonage customers that had opted to buy the stock did not get their shares issued immediately and only received them after much of its value had been wiped out by the stock market.

They sued, of course.

4. Rackspace

Mark Zuckerberg (and other Facebook investors), take heart. For every one of the horror stories listed above, there's also a Rackspace that not only managed to survive a disappointing IPO but has continued to grow since then, increasing its share price by almost 500%.

Rackspace, an IT hosting company that runs datacenters, went public in August 2008 with a share price of $12.50. Unfortunately, from the first trade, the listing price resolutely remained below the offer price. The share price continued dropping and even reached a low of about $4.5. It took almost a year for Rackspace's shares to cross the IPO price and since then there has been no looking back. The company's shares reached almost $60 and are currently being traded at just above $51.

5. Demand Media

In polite terms, Demand Media is referred to as a "content farm", a company that owns many sites serving content that is tailored to meet the trends that are popular in Google search. For the impolite terms, you'll have to go to sites other than this one.

In early 2011, Demand Media launched its IPO, setting a target of about $150 million with a share price of $17. The shares quickly caught the attention of investors and the shares reached a peak of $25 on the first day itself. Although thereafter the share price did fall a bit, it continued to be traded above the IPO price.

And then, Google Panda happened.

Announced in February 2011, Google Panda was an update designed to bring "quality" content to top of Google search results. The update was rolled out globally in April 2011 and almost immediately, Demand Media started paying the price. The share price slid below the IPO price and went into a free fall reaching a low of $5.47 in October 2011. The shares haven't reached double-digits since then and are currently being traded at just over $9.


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