Alibaba Stock Buyers Beware Past Mega-IPOs Tumbling

Alibaba Group Holding Ltd.’s new shareholders will be seeing red should the stock perform like most of the biggest U.S. initial public offerings.

Four of the five largest companies to list on U.S. exchanges plunged more than 17 percent in the year after going public, the CHART OF THE DAY shows. The exception, Visa Inc., soared 28 percent raising $19.7 billion in 2007. Alibaba, set to be the biggest IPO in U.S. history, has said it will raise as much as $21.8 billion when it prices the offering today.

Large companies with already-proven business models often stumble out of the gate because of unachievable expectations, according to Walter Todd of Greenwood Capital Associates LLC. Alibaba is seeking a market value of as much as $167.6 billion, or 29 times four analysts’ estimates compiled by Bloomberg for its earnings in the year through March 2015.

“Investors clamor for shares when given access to a large private company for the first time,” Todd, who oversees about $1 billion as chief investment officer for Greenwood, South Carolina-based Greenwood Capital Associates, said in a phone interview. “Companies run the risk of setting themselves up for failure in the short term by getting overhyped. Based on history, that’s definitely a risk for Alibaba.”

General Motors Co. and Facebook Inc. fell more than 30 percent in the year after their IPOs in 2010 and 2012. Enel SpA, Italy’s largest utility, sank 18 percent after its U.S. listing in 1999. The company later delisted the stock.

Shares of AT&T Corp.’s wireless unit plunged 33 percent in the year following its $10.6 billion IPO in April 2000. Cingular Wireless LLC bought the company in 2004.