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A Reuters analysis of the previous 15 largest IPOs of all time shows that beyond a first-day pop, the first year's performance for most of these mega deals was a major flop.
Alibaba Holding Ltd could seize the mantle from Agricultural Bank of China Ltd as the largest IPO in history when it closes the deal on Thursday to raise some $22 billion.
China's largest e-commerce player, which reported net income tripling to nearly $2 billion in its most recent quarter, has already boosted the IPO's pricing range, and it is clear that not everyone who wants in on the deal will be able to get shares before they hit the market.
As a result, like so many past IPOs, it would not be surprising to see a hefty jump in Alibaba's shares on their debut on Friday. Still, IPO experts say it could be hard for the stock to maintain that momentum and outperform afterward.
"I think there is roughly a two-thirds chance that Alibaba will underperform in the next three years," said Jay Ritter, a finance professor at the University of Florida in Gainesville, who tracks IPOs.
Eight of the 15 biggest IPOs gained in the year after their first day's close, but their average increase of about 17 percent was skewed by two massive gains: China's ICBC and Japan's NTT Docomo, which more than doubled. The median performance of the group was a far more modest 4.1 percent.
Moreover, 11 of these titans, all of which raised at least $10 billion in their IPOs, lagged their local stock market, most of them by double-digit margins.
Their massive size alone may be a hindrance, according to Ritter.
For instance, Alibaba could have a market capitalization approaching $170 billion if it prices at the top of its projected range. In order for the shares to double, Alibaba would have to become the second-largest company on the NYSE by market cap, behind Exxon Mobil Corp and above Johnson & Johnson.
"So the possibility of doing more than a couple hundred percent is much more limited than when a smaller and younger company goes public," Ritter said.
Even the 140 percent surge in ICBC, the Chinese bank and second largest IPO with $21.97 billion raised in October 2006, failed to keep pace with that year's meteoric showing by the Shanghai SE Composite Index. The index rose more than 207 percent in the same stretch.
Another risk may be Alibaba's consumer focus, and consumer-oriented stocks have fallen out of favor this year. The S&P 500 Consumer Discretionary index, which includes a bevy of U.S. e-commerce names such as Amazon.com Inc, is the poorest performer of the S&P 500's 10 industry sectors this year.
"Because Alibaba is already creating net income they're likely to perform better, but those earnings are likely to be cyclical," said Diane Garnick, chief executive of asset management firm Clear Alternatives LLC. "As consumers buy more, Alibaba will be one of the most consumer sensitive or economically sensitive companies out there."