Is The IPO Market Signaling A Stock Market Top?

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How Stock Market Observers Look To The IPO Market For Signs of a Top

Strong 2014 IPO MarketWith the broken King Digital Entertainment (NYSE:  KING) IPO and a rush of IPOs hitting the market, some are wondering if the IPO market is signaling a stock market top?  Stock market observes are always looking for signs of market tops and bottoms.  The performance of Initial Public Offerings (IPOs) is one factor that many stock market pundits and analysts take very seriously.  This is because broken IPOs and a large uptick in IPOs have historically been signs that a bull market run is maturing and may be nearing the end.  A broken IPO is an IPO that breaks its opening price and trades lower at the close of its first day of trading.  A surge in IPOs being bought to market by investment banks is a sign that investment bankers think that the bull market may be nearing a peak and their clients need to go public to cash in on the bullish market sentiment before it sours.

Is The 2014 IPO Market Pointing To A Market Top?

Stock Market TopThe IPO market during the first half of 2000 provided an early warning sign that the amazing bull market run in technology stocks that occurred during the late 1990s was coming to an end in 2000.  Savvy stock market observes have not forgotten the lesson provided by the IPO market in 2000, as the NASDAQ composite index lost over 75% of its value over the following two years during a severe bear market sell-off.

The performance of IPOs is a good stock market barometer for traders and investors looking for signs of stock market excessiveness and froth.  When IPOs trade much higher after opening and the stock’s fundamentals and valuation do not appear to matter, it is a sign that investors are too bullish and just throwing money at stocks; a sign that a valuation bubble is forming.  Conversely, when IPOs sell-off quickly on their first day of trading, or soon thereafter, it is a sign that the stock market may be becoming frothy, as money rushes into buy new IPOs but is not supported by follow through buying.

Many stock market analysts consider the failed PALM IPO of March 1, 2000 to be a harbinger of the steep NASDAQ composite index sell-off that months later that month and continued for two years, until hitting bottom in 2002.  On the day of its IPO, PALM shares were sold to those allotted IPO shares at $38 per share.  PALM then opened for public trading at $165 per share, and closed at the end of the trading session at $95 per share.  In hindsight, the poor performance of the high-profile PALM IPO was an indication that investors were too exuberant about investing in technology companies without concern for the underlying fundamentals of the companies.  The PALM IPO blow off top occurred just a few days before the technology heavy NASDAQ composite index suffered its own blow off top at just over 5,000.

With the number of IPOs coming to market during the first quarter of 2014 the highest since the first quarter of 2000 and the stumbling of the King Digital Entertainment IPO, analysts are wondering if it is a sign that the stock market is nearing a top, or at least the highly volatile technology sector of the stock market.  Are companies rushing IPOs to the market to capture the latest wave of investor over-exuberance, which should be taken as a sign that many high-level executives and Wall Street insiders believe the stock market is overvalued?  Or, is the strong IPO market just a sign that the overall economy is growing stronger and supportive companies going public?  Nobody knows for sure, but after the early warnings that the IPO market gave to the overall stock market in 2000, savvy stock analysts are assessing the IPO market for clues.

Can The IPO Market Signal Stock Market Turning Points?

IPO Market Top
The IPO market is used by stock market analysts as a contrarian indicator, in the same way that bearish and bullish investor sentiment is used a contrarian indicator.  While a roaring IPO market may be a sign of a healthy economy with many companies looking to go public to raise capital, it may also be a sign that insiders are trying to cash out while the time is good to get out, by selling their private shares to the public via IPOs.

While the IPO market cannot in and of itself signal a stock market turning point, such as a top in a bull market, it should be used as one of many indicators to assess whether a stock market top is approaching.  If the IPO market appears frothy, with IPOs valued at unrealistic valuations once they have gone public, or appears overextended, with IPOs selling off after going public, it is certainly a sign of stock market excess and stress.  This is not what a healthy bull market needs to continue.

Two expected IPOs worth keeping an eye to gauge investor sentiment during 2014 are Box and Redfin.  Box is a leading company in the fast growing cloud-based storage business.  Redfin operates Redfin.com, a website that provide real estate sales listings and a team of realtors that help users find, view, and purchase homes.  If these IPOs flop or run to excessive valuations well beyond realistic stock valuations, it may be a sign that a stock market top is near.

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Hilton Plans Largest Hotel IPO

It’s been a while since we have focused on what companies were preparing to go public. The last company we adamantly followed was the social media site Twitter, who has been one of the most successful technology companies to go public to date. The latest company to announce it’s initial public offering was not another tech startup, no instead one of the largest names in the hospitality industry. With the Blackstone Group’s investment, Hilton Worldwide Inc plans to launch it’s initial public offering before the end of this year. If all goes well, Hilton will result in the largest hotel IPO to emerge. We’ll take a look at how the Blackstone Group and Hilton Worldwide arrived at this decision and will see what it takes to be considered one of the largest hotel IPO to be launched.

(Photo credit to: PassengerTerminalToday.com)

(Photo credit to: PassengerTerminalToday.com)

Planning the Hilton IPO

When the Blackstone Group invested $6.8 billion back in 2007 they took Hilton Worldwide Inc private, which was one of the largest leveraged buyouts before the global financial crisis in 2008.

They took it for $26.7 billion (including debt) and have a 76.2% stake in Hilton Worldwide. The initial public offering for later this month will sell 11.5% of the shares, increasing the overall company value to $32.5 billion. The Blackstone Group plans to double its initial investment as Hilton Worldwide goes public, making their piece of the pie worth $15.7 billion.

Hilton Worldwide’s goal is to raise up to $2.37 billion as they prepare the largest hotel IPO launch.

Why Launch Hilton IPO Now?

Many are puzzled as to why the hotel/hospitality titan has decided to go public this year. It turns out that the Blackstone Group had timed this to launch as the overall global consumer travel demand has been gradually increasing. This past year has garnered great results as the hotel industry continues to recover. Both room rates and occupancy levels are expected to continue to increase into the next year, following the present 30% rise.

Hilton’s IPO would only be second to an oil pipeline holding company for the title of largest IPO of 2013. Blackstone has seen how initial public offerings have helped a wide variety of companies, like Hyatt Hotels Corp, who raised $950 million back in 2009. Just last month another one of their hotel companies that they back (Extended Stay America) raised approximately $565 million. They have no plans of stopping either, looking for a hotel hat trick as they are planning to take the hotel chain La Quinta public following Hilton’s IPO.

Before the end of this year, the largest hotel IPO will offer 112.8 million shares between $18 and $21 each. By these numbers it should give the company an overall equity value of $20.7 billion. Hilton Worldwide plans to begin repaying their $11.8 billion in debt by utilizing $1.25 billion of the largest hotel IPO proceeds towards it directly.

Hilton IPO, Good or Bad Idea?

The Hilton Worldwide umbrella encompasses a vast amount of properties spanning over 90 countries and 4,000 hotels. Just a few years shy of a century old, the hospitality industry has had their fair share of ups and downs. As many are still recovering for the financial crisis from five years ago, Hilton’s plans and reasons are proof that no company or group was safe or absolved from debt. Luckily, they have the Blackstone Group supporting and assisting them through the entire initial public offering process, which should definitely help them get everything in place for when they plan to launch it later this month.

With such a wide variety of IPOs emerging, what do you think? Will you be one of the individuals to invest in Hilton Worldwide?

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Twitter IPO Makes Millionaires

Looking back on last week’s results, the limited character mini-blog social media website Twitter did quite well as they went public. Within hours, the stock’s share price almost doubled from the initial offering price. Now, as we had a weekend to take a look at the numbers we can take a look at just how well some of the Twitter shareholders really did. Diving further, we’ll even look at how what kind of tax bill will be generated from the $2 billion plus already generated in the first few days.

(Photo credit to: InvestmentNews.com)

(Photo credit to: InvestmentNews.com)

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Univision IPO Details

Univision IPO Brings New Wall Street Excitement

Univision_2013_logoUnivision, the most popular of the Spanish language stations in the United States, with nearly 9 million viewers per day,is having a banner year. Coming off of their historic topping of national giant, NBC of the lucrative 18-49 demographic at the first part of this year, the company is showing substantial growth while the rest of the market remains sluggish. While placing sixth overall, their meteoric growth is something many investors are making note of.

Reasons to Believe a Univision IPO Will Occur in 2014

With the recent success, many rumors are circulating about their recent talks with banks about taking the now private company public once more. In 2007, the network was acquired by Madison Dearborn Partners, Providence Equity Partners, TPG Capital, and Thomas H. Lee Partners for $12.3 billion. Private equity groups often buy companies such as Univision as an investment that they intend to eventually profit from, by improving the company’s balance sheet and selling the company to either another private equity group or to the public via an IPO for more than they paid for it. A recent surge in equity markets this year is a strong indicator that Univision’s time has come.

Univision’s Competitive Advantage

A unique portion of Univision’s viewership is their highly receptive audience. An astounding 90% of their viewership is live, something that in the day of dvr and streaming services such as netflix is the envy of the “Big 4” US based networks, NBC, CBS, ABC and FOX. While they’ve seen a steady 10% decrease across the board, Univision has seen an increase. Univision is currently the 5th most watched TV channel in the United States during primetime hours which makes it a very attractive conduit for advertisers that are trying to reach the fast growing Spanish speaking population of the United States. With such positive demographics driving Univision’s growth, the Univision IPO is expected to be well received by Wall Street.

Univision IPO Rumors Back in 2012

Last year, there were murmurs of Univision’s IPO as well. The company hired former NBC President Randy Falco and concluded a dispute that Univision had with its major supplier of programming that Univision was once in talks to buy, Grupo Televisa.To conclude the dispute, Grupo Televisa agreed to invest $1.2 billion in Univision in exchange for a say in management decisions at Univision. The settlement of the Grupo Televisa dispute cleared a major hurdle that was in the way of the Univision IPO.

Late last month, three inside sources have revealed that Univision has been in talks with banks about an initial public offering, most likely in the first quarter of 2014. Nothing has been officially confirmed by either the holding financial institutions or Univision themselves but, such a move seems inevitable. Univision’s earnings in the second quarter of 2013 have jumped 28% to $40 million and overall revenue grew 10.4% to a new high of $676.5 million.

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Twitter IPO Confusion Sparks Massive Penny Stock Rally

Twitter IPO logoOn Friday we wrote an update  about the Twitter IPO being the most anticipated upcoming IPO.  Activity across various websites and media has caused a massive amount of buzz to form.  Sites like Google Finance began to setup quotes for TWTR, the anticipated future stock symbol for Twitter.  Investors however appeared to confuse a bankrupt consumer electronics company, Tweeter Home Entertainment Group (TWTRQ) for the Twitter IPO.  Trading on Tweeter opened at $0.007 and climbed to $0.15 (over 1,800% gain) in morning trading before closing at $0.051, over a 684% gain.

Background of Tweeter Home Entertainment company

Tweeter was a specialty consumer electronics store founded in Boston in 1972.  It had more than 100 stores across 18 states, primarily along the east coast.  In 2007 the company ran into financial trouble and entered into Chapter 11 bankruptcy protection.  It was during this period of time that the Tweeter Conpany began trading their shell as TWTRQ on the OTC Pink Sheets.  In 2008, the company filed for a conversion to a Chapter 7 bankruptcy liquidation and shortly after closed its final stores for good.  Readers in the Boston area will probably remember the Tweeter Center, a popular concert venue that has since been renamed to the Comcast Center.  Since then the shell company has continued to trade with almost nonexistent volume as the company has not completed its bankruptcy.

tweeter store

A Former Tweeter Store

How did the mixup happen?

Nobody is quite certain, but what is known is that trade volume on TWTRQ was higher than normal for a few weeks proceeding the wild ride it had on Friday.  This could have been caused by a few savvy investors buying up the dirt cheap stock in hopes there might be a confusion when Twitter’s filing news went viral.  If so, the strategy certainly worked until FINRA froze trading at 12:42PM Friday for an “extraordinary event”.   If investors managed to trade out the stock before trading froze it’s entirely possible they could have left with over 1000% gains.  Of course it could have just been novice investors hoping to jump into a Twitter IPO that hadn’t actually begun yet.

Could this be a strategy?

Twitter’s upcoming IPO is an extraordinarily hyped IPO for one of the world’s largest social networks and conveyors of information.  Small companies and investors have been known to register domain names and phone numbers that resemble very closely large and easily recognizable companies in hopes that a potential customer might mistype or misdial their address.  Penny stocks are very inexpensive and in the case of a penny stock closely resembling Twitter’s future stock symbol, leave potential for viral activity spilling over to create accidental trade activity.  I wouldn’t call trading like this a strategy.  It’s a bit like buying a lottery ticket that will likely have no value but could produce massive returns if the conditions are just right.

What Lies Ahead

We expect that there will be much more news to cover related to this.  The Facebook IPO was chaotic and a great deal of controversy broke out when it began trading.  Only time will tell if Twitter’s IPO succeeds where Facebook’s failed.  This kind of market behavior could start to happen with other smaller IPO’s.  We’re in a very exiting time to trade the markets.

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UPDATE: The Twitter IPO Will Likely Be One of the Biggest of 2013

Twitter IPOLike many in the technology and stock related industry, we are excited for the Twitter IPO. What started as more of a wishful anticipation has turned into a reality over the last few months, as we have been following their journey to initial public offering closely. In September, Twitter had taken the first steps to going public, as they filed their S-1 document confidentially under the JOBS Act. This new law protects all businesses from divulging their revenue early in the IPO process as long as their revenue is under $1 billion per year.

At that point it was also announced that Goldman Sachs would be the lead underwriters for Twitter.

Now, as we progress into the beginning of October, we want you to be prepared and know what to look out for with the Twitter IPO.

What You Should Know About The Twitter IPO

Because Twitter filed under the JOBS Act, there are a few things that we can count on in the next few weeks. For starters, the documents that Twitter initially withheld during the first filing will have to be made public very soon. At least before the “road shows” process begins. Following the recruitment of Goldman Sachs, Twitter also enlisted the advisement of Morgan Stanley, Deutsche Bank, Bank of America Merrill Lynch, and JPMorgan. Insiders close to the Twitter execs explained that the additional banks will be serving as Twitter’s credit lines through the process. They estimate that these lines can each extend up to almost $1 billion.

As of right now, insiders suspect that the total value of the Twitter IPO between $15 and $16 billion which would put the share prices at $28 and $30 each. It also seems that the NYSE will be a better home for Twitter than the heavily tech populated NASDAQ. Following the pace they are on, this can put Twitter on the right track to be public traded before Thanksgiving.

Key Areas to Look for in the Twitter IPO

In the following weeks it’s important to pay close attention to key areas of the documents that Twitter will have to file publicly. Take a look at the list we’ve put together below to see where:

Financial Data: Interested investors are going to want to analyze the past and recent trends, gross margins and net profits/losses by the company.

Management’s Discussion: Where Twitter’s own executives discuss the different advertising campaigns, profit streams and potential earnings. Though remember, they want you to invest, so take their words with a grain of salt.

Risk Factors: One of the most important sections to focus on. Here will be the list of challenges the business faces.

Executive Compensation: How much management earns and in what forms.

Principal/Selling Shareholders: Any current shareholder with 5% or more will be listed here.

Capital Stock Description and Voting Agreements: All interested investors will want to know who will have control over voting rights and the stock class.

Twitter IPO Wrap-Up

Many professionals and investors alike are hoping that the Twitter IPO fares better than Facebook did when they went public. It seems that since they went public, there has been more of a realistic grasp on pricing and projections. The next few weeks will surely be an exciting time for Twitter, as long as the government shutdown doesn’t last too long. With this pace we should be able to start buying Twitter on the NYSE before Thanksgiving!

What do you think? Will you be following the Twitter IPO closely? Let us know!

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