Two Bad IPOs Get Worse… Social Media Valuation Woes? (RENN, FFN)

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There are two recent initial public offerings where an apology is due to investors by both the companies which came public and by their underwriters.  It is not fair to just automatically expect that all IPOs will rise immediately and rise indefinitely, but there had been problems in each of these ahead of the IPOs.  Despite being entirely different types of ‘social media,’ the pricing and the valuation of these two crummy IPOs might be bad enough that both LinkedIn and ultimately even the untouchable Facebook better take note.  Renren Inc. (NYSE: RENN) and FriendFinder Networks Inc. (NASDAQ: FFN) are chewing up more post-IPO investment dollars than most retail investors can imagine since coming public.

Renren Inc. (NYSE: RENN) has only been a public company for seven trading sessions.  The dog of an ADS has closed lower on all seven trading sessions.  What was supposed to be the hot “Facebook of China” company has seen shares go from hot to snot.  It is also majority-controlled by its founder.  Renren became a busted IPO yesterday and it lost yet another 6.6% to close at $12.60 today and the trading volume was nearly 14 million shares.

FriendFinder Networks Inc. (NASDAQ: FFN) had one of the worse IPO debuts of recent years.  After pricing 5 million shares at $10.00 per share on Wednesday, the stock’s first day close was all the way down at $7.85 on volume of only 2.7 million shares.  Its second day, today, was another drop with shares falling by 5.2% more down to $7.44 on volume of less than a half-million shares.  With friends like this, who needs enemies?

At FriendFinder, it may be exceedingly difficult to diversify away from Penthouse and AdultFreindFinder and other ‘adult’ porn-related social networking sites.  Its use of funds was to repay a portion of its debt.  At Renren, there was the over-estimates growth a week before the IPO and the resignation of the chairman of its audit committee a day before its IPO.

Some blame here is on the companies, but you have to expect that any company wanting to come public WILL go public if allowed to.  The real blame for the performance and the hurried IPO probably lies with the underwriters.  ARen’t they supposed to be smart enough to know when a bad deal is a bad deal? 

Can either of these companies claim that the volatile currency and commodity markets are to blame?  Can either blame austerity measures or a slight economic growth downgrade for their woes?  Both of these IPOs should change their stock tickers to have ticker variations with “POS” in them if this continues. 

JON C. OGG