Should You Start Investing in IPOs?

Investing in IPOs sounds like fast money to people who do not know a lot about the stock market. When people think of initial public offerings, they imagine what it would have been like to invest in Microsoft’s IPO or in some big oil company when it just got started. However, those are actually rare results. Many IPOs fizzle or they start auspiciously before ending up in disaster.

Still, there is no question that investing in IPOs could be a valuable part of any investment portfolio. Just as you should have some very conservative investments, you should also have some that push the limits and take risks. As long as you moderate the amount of money that you invest in these instruments, you will not risk too much while you retain the possibility of a large return.

 Guide to Investing in IPOs

•             What is an IPO?

Prior to an IPO, a business typically has only one or a few owners. The business is usually small and often depends on private capital investment as a source of funding. When it makes its initial public offering, the public has its first chance to buy shares of the company. Just prior to the public sale, some large institutions will have a chance at investing IPOs.

•             The Timing of an IPO

Companies usually time their IPOs in order to maximize profit. Usually the company will have made name for itself. A significant sector of the public will know about the company and recognize the value of its goods or services. A properly timed IPO will create a lot of instant cash flow for the owners of the company.

•             You should take all the same precautions investing in IPOs as you do with any other stock. Research the fundamentals of the company. Do not start investing in IPOs until you know everything possible about them.

Do Your IPO Research before You Invest

It is easy to get excited by the news of an IPO and forget to do your IPO research. Those are heady moments when a young, aspiring company releases its shares to the public for the first time. People think of all the large cap success stories, such as Microsoft, and forget about all the many failures and disasters. While the success stories involve fabulous wealth, any quick round of IPO research will reveal the numerous failures that took a lot of investor money down with them.

 Key Elements of IPO Research

If you are going to be a careful IPO investor, then you should know a few things about the company in which you are interested. You should also understand the methods that they will use to make this first offering. You should also decide ahead f time if you are interested in stag profit rather than long-term investment.

•             Research the company behind an IPO just as you would any other stock. IPO research will be slightly harder to do at this point because the company will not have as clear of a track record as a company that has been on the market a long time. However, in order to make an IPO every company has to file with the SEC and reveal certain facts about their fundamentals.

•             Find out which method they will use for the pricing and allocation of their shares. Among the most common methods are various kinds of contracts, deals and auctions. Often a price for the stock is set ahead of the sale.

•             It is possible to make a stag profit from an IPO. This occurs when you make a quick sale just after the IPO begins. You can usually make a small profit because the value of their stock will surge upward, at least briefly, due to the sudden increase of interest. This means that you will sacrifice all your IPO research in order to walk away early with a small profit.

Invest in Hot IPOs

Hot IPOs are an investor’s dreams. These are some of those rare investments which truly offer the possibility of making a fortune in a short period of time. In order to understand the possibilities, imagine the financial fate of someone who invested in Microsoft at its IPO. Anyone who held onto that stock probably quit his or her job a long time ago.

 Some hot IPOs are rumored to be coming in 2012. Take a look at them and do what you should do with any investment before you open your wallet. Study their fundamentals and look at the economic sector they will inhabit. If you make the right choice, it may turn out to be the best investment of your life.

 Four Hot IPOs in 2012

•             Facebook is probably one the hot IPOs on the tip of everybody’s tongue right now. It will probably earn the company founders more than $10 billion. No one has released any information about an opening price for each share.

•             The next possible IPO is from a company that has edged its way into the social media market. Tumblr is a site that makes it easy for friends to share videos, photos and links. A year ago, this site received 2 billion page views per month. They now get more than six times that number.

•             Square is attracting attention for more than just its utility. This company makes a credit card reader that can attach to mobile devices. This has made business much easier for merchants. It has also drawn the founder of Sun Microsystems to its board of directors.

•             Compatibility between devices is a great selling point for tech companies now. Dropbox has developed a way to store files across many platforms, including a variety of smart phones. Look for this company in the hot IPOs of 2012.

How to Invest In a Penny Stock IPO

How to invest in a penny stock IPO is something that is not understood well by the investing public.  The Initial Public Offering (IPO) market is dominated by household names such as Groupon and Facebook.  Few traders or investors consider that trading or investing in a penny stock IPO may be a worthwhile and profitable endeavor.

There are certainly risks taken on when one decides to invest in a penny stock IPO.  First off, the financial information provided about a penny stock company before a penny stock IPO hits the market is more limited than what is provided when a company does an IPO on a major stock exchange.  Also, the business outlook provided by a penny stock company can make it difficult to discern whether investing in a penny stock IPO makes sense in the long term, since revenue growth and earnings projections for penny stock companies are often inflated and generally unreliable.

For accredited investors (high net worth individuals), the best way to play a penny stock IPO is to buy into a penny stock prior to the IPO, when a penny stock company is seeking seed capital.  Buying into a penny stock during the seed capital phase is literally getting in on the ground floor.

The pre-IPO investment route has the potential for a much bigger payout than buying after an IPO, since penny stock shares that are brought during the seed capital phase are purchased at a price that is well below the penny stock IPO price.  However, a pre-IPO investment in a penny stock company is not without risk.  There is always the risk that a penny stock company planning on doing a penny stock IPO will never actually complete the IPO, and any seed money invested will be lost.  It is important that a penny stock company be researched carefully to find ones that have the best chance of completing a penny stock IPO and delivering big profits from the pre-IPO seed money investment.  One thing to keep in mind regarding investing in a penny stock company during the seed capital phase is a typical requirement that an investor buy both non-restricted and restricted shares, with the later having a limitation on the ability to sell (the restricted shares) for a number of months after the penny stock IPO.

How to Invest In a Penny Stock IPO in the After-Market

Most penny stock traders and investors are not accredited investors, and therefore do not have the ability to buy into a penny stock IPO during the pre-IPO seed money phase.  In order to trade or invest in a penny stock IPO, most traders and investors must buy the penny stock IPO in the after-market, after the penny stock IPO occurs.  This can be a very risky time to buy a penny stock since revenues may not materialize to support the penny stock’s price and dilution may occur, both of which could send the penny stock’s price lower in the long run.  In most cases, buying a penny stock IPO in the after-market immediately after the IPO occurs should only be done as a short term trade, rather than a long term investment.  It is not uncommon for a penny stock IPO to be followed by a post-IPO rally in the penny stock’s shares.  Once this rally runs its course, it is a good time to sell the penny stock and move on to another penny stock IPO.

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The Yelp IPO Is Attracting Heavy-Weight Attention

The Yelp IPO, which is expected to occur in 2012, is going to have a lot of competition to contend with.  Not only will Yelp be doing their Initial Public Offering (IPO) in the shadow of the towering Facebook IPO; according to financial industry advisors, the 2012 IPO market has the more pending IPOs (greater than 200) than has been seen since the Internet boom of the late 1990s.  In such a crowded 2012 IPO field, it could be difficult for the Yelp IPO to gain attention and traction.  However, many analysts believe the Yelp IPO will big one of the biggest Internet IPOs of 2012, so it is worth following developments in the Yelp IPO.

Yelp, which runs a web portal that allows users to write their own reviews on a variety of products, services, and local businesses, is hoping to turn their Internet niche into a successful Yelp IPO that could raise upwards of $100 Million, which would give Yelp a valuation of between $1 and $2 Billion.  Although Yelp’s online review business sounds like a light-weight business to be in, the Yelp IPO is attracting heavy-weight investment bankers to manage the IPO, including Jefferies and Goldman Sachs as the lead IPO underwriters.

The Financial Outlook For The Yelp IPO

The financial outlook for the Yelp IPO is not as strong as many other Internet companies that have gone public via IPOs in recent years.  Yelp is currently losing money.  Financial figures released by Yelp indicate that over the first nine months of 2011 the company had $58.4 Million of revenues, which resulted in a loss of $7.4 Million.  During the first nine months of 2010, Yelp’s revenues were $32.5 Million, which resulted in a loss of $8.5 Million.  While revenues were up significantly over the same period from 2010 to 2011, Yelp’s losses were only reduced marginally from 2010 to 2011.  The Yelp IPO may not be perceived by market participants as the high growth IPO story that entices many investors to buy into stocks during or shortly after the IPO.

One problem that Yelp has regarding their forward business model and the Yelp IPO is that unlike a company such as Facebook, Yelp does not dominate the sector of the Internet that it operates in.  The local online review space is a crowded sector of the Internet, with big league players, such as Yahoo and Google, firmly entrenched in this space, and other similar competitors, such as Local.com, vying for the same customers and users as Yelp is aiming trying to attract.  While Yelp dominates local search and reviews in some markets, such as the San Francisco market, the web portal’s presence is not nearly as visible in many other important markets throughout the United States.

Yelp has a long way to go to claim dominance in the local online review space, which means buying into the Yelp IPO in 2012 is a highly speculative proposition.  The Yelp IPO may be a sign that the new wave of Internet IPOs is reaching maturity, with marginal young Internet companies, such as Yelp, trying to tap the IPO market.

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The Vancl IPO Has Been Delayed

The Vancl IPO was expected to be a significant Chinese company Initial Public Offering (IPO) in 2011 that was anticipated by investors looking to buy into the Chinese online apparel retailer.  However, Vancl announced in December 2011 that the Vancl IPO will not occur until 2012.

It appears that the Vancl IPO was delayed because investors that own the private Vancl stock disagreed about the timing of the Vancl IPO.  One camp of Vancl investors believed Vancl should go ahead with the Vancl IPO as quickly as possible to take advantage of the interest in Chinese IPOs.  The other camp of Vancl investors wanted to delay the Vancl IPO until after Chinese Lunar New Year in 2012, in hopes that better market conditions in 2012 would bring a better valuation for the Vancl IPO.  Those in favor of delaying the Vancl IPO prevailed.  Investors looking to buy into the Vancl IPO should be on the lookout for a Vancl IPO listing after the Chinese Lunar New Year.

Details Regarding The Vancl IPO

Vancl introduced the Vancl.com clothing retail website in October 2007, which focuses on selling fashionable clothing for men and women, shoes, and apparel accessories.  Chen Nian, Vancl ‘s founder and CEO, disclosed in March 2011 that the company’s advertising revenue is expected to grow to 1 billion yuan in 2011, which is $157 million dollars; a five-fold increase over the prior year’s revenues.

Given Vancl ‘s high growth rate and the desire of some investors to diversify their holdings of Chinese IPOs away from the high technology Chinese companies that dominate the Chinese IPO market and into Chinese consumer goods companies, it is easy to understand the great interest that the Vancl IPO is generating in the investment community. 

The Vancl IPO is expected to raise between $1.0 to $1.5 Billion dollars for the company when it occurs in 2012.  While it is not entirely clear what Vancl plans to do with the money raised from the Vancl IPO, they could use it to either pay off debts that the company has incurred during their initial years in business or to expand their business into other markets.

In a sign that the Vancl IPO is a high profile Chinese IPO deal, it appears that Vancl has hired top tier investment banks to manage their IPO, including: Goldman Sachs Group Inc., Citigroup Inc., Morgan Stanley, Credit Suisse Group, and China International Capital Corp.

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The Twitter IPO Will Likely Be Big News In 2013

Looking ahead to the 2013 Initial Public Offering (IPO) calendar, the Twitter IPO is likely to occur in 2013 and will be one of the biggest IPOs of that year.  The Twitter IPO will be a widely anticipated and sought after IPO in 2013.  Depending on which other companies undergo IPOs in 2013, the Twitter IPO has the potential to be the biggest IPO of 2013.

With the monster Facebook IPO that is on tap for 2012 towering over the 2012 IPO market, Twitter is in no rush to hit the IPO market in 2012 with the Twitter IPO.  While there are no concrete signs in early 2012 that the Twitter IPO will occur in 2013, there have  been some recent moves by Twitter that indicate that the company is moving towards going public via an IPO by 2013.  During 2011 Twitter started a transition in its corporate governance structure and management team that indicate that it is taking the steps necessary to become a publicly traded-company.  Many of the people hired for their new management team have experience working with public companies.

Why The Twitter IPO Will Likely Happen In 2013

While there appears to be no compelling financial need for the Twitter IPO to occur in 2013, since the company appears to be on sound financial footing (which some observers question) and does not appear to need to immediately raise capital to fund operations, there are a number of factors that may cause the Twitter IPO to occur in 2013.

First off, the stock market is experiencing a new wave of Internet IPOs, the biggest since the 1990s, with Internet sites such as LinkedIn and Groupon completing successful high profile IPOs in 2011, and Facebook ready to IPO in 2012.  If Twitter has any intentions of going public via a Twitter IPO, then they need to get their act together and bring their IPO to market while the market for Internet IPOs is hot.

Second, the United States Security and Exchange Commission (SEC) requires private companies with more than 500 private investors to disclose financial information that public companies must disclose.  While it is unclear when Twitter will have more than 500 private investors, trading in private Twitter stock via sites such as SecondMarket and sales of Twitter stock to private investors could cause Twitter to reach the 500 private investor threshold.  Reaching this threshold usually causes companies to quickly accelerate their IPO plans, as private companies prefer to take advantage of the benefits of being a public company once they are required to disclose the same financial information as public companies.

At this early juncture, it is too early to speculate about what price the Twitter IPO might occur at and what the valuation of Twitter may be after the Twitter IPO.  Ultimately, whether there is a Twitter IPO in 2013 and what valuation will be given to the Twitter IPO by the investment community will depend upon how Twitter and its Internet peers do over the next year and how hot the Internet IPO market is in 2013.

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SecondMarket Offers A Way To Play the Pre-IPO Market

The Wall Street investment community is abuzz about a securities trading platform called SecondMarket (secondmarket.com) that facilitates trading of illiquid securities, including pre-Initial Public Offering (IPO) shares of private companies.  SecondMarket was founded in 2004, and started offering a United States Securities and Exchange Commission (SEC)-registered alternative trading platform in 2009 for facilitating trading in private company stocks.

SecondMarket provides an avenue for accredited investors to invest in private company stocks before they become publicly traded stocks via an IPO, including shares of privately held Facebook, which is expected to be one of the biggest IPOs ever when it occurs in 2012.  Having the ability to buy private company stocks via SecondMarket, before the stocks become publicly trading securities, can offer huge profit potential for investors willing to buy pre-IPO private stocks in hopes that they will become much more valuable publicly traded stocks after an IPO.  It is not unusual for stocks that undergo IPOs to trade for 50% to 100% above their IPO price (the price that shares are sold to buyers of the IPO that are allocated shares) once the shares are trading on a public stock exchange and the broader investment community has an opportunity to buy the post-IPO shares.  While a hefty profit can be made by investors who are allotted shares in an IPO and are able to buy them at the IPO price, investors who buy pre-IPO shares on SecondMarket often have an even greater profit potential since pre-IPO shares are usually can be purchased considerably cheaper than the price that IPO shares are sold to the investment community.

For example, SecondMarket has facilitated the trading of millions of shares of privately held Facebook stock.  Investors who buy private Facebook shares via SecondMarket, before the Facebook IPO in 2012, may be able to pay significantly less than the IPO price for their Facebook shares purchased through SecondMarket, which increases their profit potential once Facebook is a publicly traded post-IPO stock and likely trading well above its IPO price.

How Individual Investors Can Benefit From SecondMarket

Buying pre-IPO shares in private stocks via SecondMarket may sound too good to be true to the average investor, and unfortunately, there is a catch.  Individual investors are not able to buy private company shares via SecondMarket.  Only accredited investors can purchase shares of private stocks using SecondMarket.  An accredited investor is a person with a net worth of One Million United States Dollars or greater (excluding their personal residence) or has had an income of greater than $200,000 per year ($300,000 for married couples) for two or more years, and an expectation that they will continue to meet these earning thresholds for the foreseeable future.

The accredited investor limitation obviously means many individual investors are not qualified to buy pre-IPO shares in private stocks on the SecondMarket trading platform.  However, a recent development in the mutual fund realm of the investment world means that individual investors are not entirely shut out of the lucrative private stocks pre-IPO market, such as SecondMarket.  In December 2011, Keating Capital Inc. listed its closed end pre-IPO fund on the NASDAQ stock exchange under ticker symbol KIPO.  Keating Capital Inc.’s pre-IPO fund invests exclusively in pre-IPO shares of private companies to provide growing private companies with needed capital and to take advantage of the great profit opportunity that buying private company shares prior to their IPO offers.  This means that despite the SecondMarket investment limitations, individual investors can invest in the pre-IPO private stocks by buying KIPO.

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Alibaba’s HiChina IPO Announcement

The announcement of Alibaba’s HiChina IPO came as no surprise to those who have been watching the company. Over the last few years, buyer-to-buyer sales website Alibaba has been growing in popularity. While HiChina started out as the company’s domain hosting service, it soon began to grow with the rest of the company. Like Alibaba, it offered the competitive pricing desired by business trying to get through the dismal economic situation. In September, the company announced that it would be supporting HiChina’s first public offering on the regular market. $200 million was raised in order to ensure that the IPO would be a success.

Alibaba’s HiChina IPO was not the only news announced by the company. HiChina also plans to expand their services from domain selling to cloud hosting. This service will give companies the opportunity to purchase online cloud storage space. The information uploaded to the cloud could either be set up for download by clients or the public, or it could be kept private and used strictly by the company. As an increasing number of businesses and individuals are turning to cloud storage, HiChina hopes to become a leader in the field.

Why Invest in Alibaba’s HiChina IPO

In spite of the flurry of publicity surrounding the announcement, Alibaba’s HiChina IPO seems to be a sound, stable investment. Both Alibaba and HiChina have already proven their ability to function as companies and they continue to sell services that are highly desired by many of their customers. HiChina’s announced growth into the cloud storage market also shows a dedication to innovation and expansion that should be welcomed by many investors. Whether you are interested in the world on online business or you are simply looking for a good investment, HiChina may be one of the top IPO’s of the year. In short, you should jump on Alibaba’s HiChina IPO while the prices are low, because they are sure to rise in the near future.

The Company Behind The Guidewire IPO

The Guidewire IPO is going to offer investors a chance to own a piece of a company that creates and maintains the software at the core of the insurance business. This company was founded in 2001. It markets its software products to insurance companies, not to individuals.  With the insurance business as lucrative as ever, the Guidewire IPO is attracting a lot of attention since this company has linked its fortunes to the need for insurance.

Intentions Of The Guidewire IPO

Having been in the business for ten years, Guidewire finally filed with the Securities and Exchange Commission to seek an initial public offering. Many market watchers had been expecting this move. For years, Guidewire has been recognized as one company in a select group in Silicon Valley, which was approaching readiness for such a move. Some other, well-known software and Internet-based companies are expected to seek their IPO’s soon as well.

One development that has helped propel Guidewire out of the ranks of many start-up companies in the software business was their creation of a programming language known as Gosu. This is a general purpose language for programming. It is used in open source projects and it has borrowed elements from Java, C# and other languages. This general usefulness makes it very attractive to companies that want to work around the globe without hindrances based on technological differences.

The Guidewire IPO was filed with the hopes of raising as much as $100 million. This should be easily attainable for a company that has over 100 major customers, including American Family Insurance and Nationwide. Another piece of data that will likely spur the success of the Guidewire IPO is the financial report for last year that reported more than $120 million in revenue during the last nine months.