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2015 IPO Outlook


The 2015 IPO Outlook Features Some Well-Known Names

2015 IPOsThe 2015 IPO outlook features some well-known names in the technology world, some of which have put off their Initial Public Offerings (IPOs) during 2014, due to company-specific reasons and in some cases due to stock market volatility.

2014 is a tough act for 2015 to follow in the IPO market.   With the stock market in the fifth year of a bull market, 2014 was a banner year for IPOs. 231 IPOs have been completed during 2014, as of October, a 36.7% increase over 2013, netting newly public companies $73.6 billion in cash for their needs, 84.1% more than the prior year.

While it is unlikely there will be more IPOs during 2015 than there were in 2014, there are some notable companies that are part of the 2015 outlook that investors would do well to pay attention to. Some of the 2015 IPOs will include high-quality companies that investors should look at seriously as long-term investments.

IPOs represent a broad spectrum of industries. The excitement surrounding IPOs currently centers around the life sciences, technology, financial, and energy sectors. In technology, the IPO activity is skewed towards Internet companies.

GoDaddy

2015 is shaping up to be no different than recent years. From file sharing to web hosting to online dating, the headline IPOs of 2015 are all technology and Internet companies that many people know because they use them and are customers. These include the cloud storage and file sharing company Box Inc., the web hosting company GoDaddy Inc., and the online-dating site Zoosk Inc.. What makes the technology and Internet IPOs different this time around, compared to the horrendous performance of many IPOs after the dot.com bubble burst around the year 2000, is that many of the companies IPOing in 2015 run well established businesses that produce real revenues, and in some cases real earnings. Although Internet based companies are the sexy IPOs of 2015, companies in the other hot IPO sectors should also be taken into consideration, as these companies are experiencing rapid growth in revenue and for some earnings.

The 2015 IPO Outlook | The Sectors To Focus On In 2015

Not surprisingly, the technology sector has been the strongest IPO sector in 2014 and its dominance in the IPO market should continue in 2015.   Biotechnology and healthcare stocks have rallied tremendously in recent years. This broad rally has caused an uptick in interest in IPOs in this sector, which is known as the life sciences sector. Look for life sciences IPOs to be leaders again in 2015. The financial sector has also put in a big showing in the IPO market lately, and this should also be the case during 2015. Even though energy prices have fallen in late 2014, there are no signs that IPOs by energy companies will slow down in 2015. In fact, many energy companies are eager to IPO as master limited partnerships (MLPs) to take advantage of the tax advantages enjoyed by master limited partnerships, which should drive the IPO market for energy companies in 2015.

The 2015 IPO Outlook | IPOs To Look Out For In 2015

ZooskThe following are some of the IPOs that will likely garner the most attention during 2015. This is just a sampling of the hundreds of potential IPOs that may come to market in 2015.

  • Box – Box is one of the leading companies in the fast growing cloud-based storage Internet sector. Box’s clients use the company’s products to store files in the cloud and to share files with others.
  • Dropbox – Dropbox is in a similar line of business as their competitor Box. Dropbox is known as one of the leaders in the fast growing cloud-based file storage and sharing space.
  • Square – Square was founded by Twitter founder Jack Dorsey. The company is trying to make a name for itself in the quickly growing online electronic payment processing sector. Square’s software and backend payment processing systems turn any smart phone or tablet into a cash register that is capable of accepting and processing credit card payments.
  • Zoosk – Zoosk is on of the best-known names in the world of online dating.
  • GoDaddy – GoDaddy is a well-known Internet domain registrar and website hosting company.
  • Redfin – Through its website Redfin.com, users can search real estate and arrange to view homes in person via Redfin realtors.

Why IPOs Will Remain Hot During 2015 and A Word of Caution

One of the factors that is likely to keep the pace of IPOs high in 2015 is the strong state of the United States economy. With the economic recovery reaching a mature age of six years during 2015, companies will by motivated to go public via IPOs to raise capital in the stock market ahead of the next economic downturn.   Just beware that some companies that have waited this many years to do an IPO may not be very stabile financially and need to be thoroughly vetted prior to investing in them.

One thing that is missing from the 2015 IPO calendar is a blockbuster IPO that captivates everyone who follows the stock market.   In 2013, the blockbuster IPO was Twitter, while in 2014 it was Alibaba. The reality is that in a typical year, IPOs are done by hundreds of companies, big and small, for the purpose of raising money for business expansion and other business needs. Even without a blockbuster IPO that stands above the rest in 2015, there will still be plenty of opportunities for traders and investors to buy IPOs that have great potential to make gains during 2015. In fact, it is the under-the-radar IPOs that often provide the best trading and investing opportunities, since they are not overvalued coming out of the gate and have room to appreciate in price as the broader stock market realizes the success of their underlying businesses.

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What to Look for When Choosing an IPO


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Choosing an IPO

IPO - Initial public offeringAn IPO (Initial Public Offering) is the process of a private company transforming into a publicly traded company.  It is also known as “going public”. You may have heard of social media giant, Facebook, going through this process in 2012, or the daily deals site, Groupon, the year prior. This can be a great opportunity for investors to get in on the next big thing and have something unique in their portfolio. However, these offerings have a unique set of risks and conditions, which can make them more perilous compared to other stocks. In order to make sure the risk factors are low for any potential investment, I have put together a collection of key factors to focus on when choosing an IPO. Here I will show you the plan to scale: initial valuations, full-disclosure, the lock up period and, of course, the ever so important prospectus summary. As with any investment, taking the time to do the necessary research can help avoid making poor and costly decisions.

 

Poised to Expand

netflix ipoWhen a company is considering going public, often it’s because they’re ready to expand their business. An increase in funds can be the push they need to purchase more production capacity, attract new talent, and increase their marketing reach. An IPO has the ability turn a small time player into a big time competitor in their industry and can give investors the opportunity to get in on the ground floor. Examples like the Netflix IPO in 2002 show that in some cases there’s a lot of money to be made choosing an IPO as an investment.

Initial Valuation

In order for a company to become public, it must be evaluated by an in investment bank to determine how many shares and the initial price per share. The company and the bank agree on terms of investment and its up to the bank, or in most cases a group of banks, to sell the investment to potential customers. This process of valuation is called underwriting. After the price is determined, the bank files a registration with the SEC containing all of the company’s financial information, holdings, management details, and all other required disclosure information. At the same time the bank prepares a prospectus for potential investors to market their new product.

The Nature of the Prospectus

When choosing an IPO, the first thing than any investor is going to be going over is the prospectus written by the underwriter. This document contains all of the pertinent financial information, as well as projections on the future health of the company. It’s important to note that this document is primarily a sales tool and paints the company in the best possible light to encourage investors to buy in.

Key Points to Look For in the Prospectus

While the Prospectus Summary is somewhat bias, as we stated above, it does hold some value to potential investors. Though it will show the company in question in a much more positive outlook, there are key points to look through as you read it. The Securities Exchange Commission’s (SEC) website offers great insight on highlighting important sections of the Prospectus Summary you should focus on. After reading through these sections you should be able to make a well-educated decision on if this IPO is right for you.

Risk Factors: is contributed by the company’s management as they identify aspects that could seriously impact the company’s business, performance, and operations.

Use of Proceeds: will specifically identify what the company in question is planning on doing with the money being raised through going public.

Dividend Policy: is a description of the company’s history of paying, or even potential it’s plans to pay in the near future, it’s dividends to it’s shareholders.

Dilution: will give you an illustration comparing the price potential investors will be paying for the shares in the company’s IPO to the actual book value of the shares and the average price that was paid by existing shareholders including the founders, officers, and any early investors.

Selected Financial Data: offers you, the reader key financial data (among other details) structured in a column summary. This section will usually highlight major trends in the company and the outcomes of certain operations. While companies are usually required to disclose financial data from the last five years, you will be lucky if you receive reports on the previous two years from companies considered as an “emerging growth company.” The only companies not required to submit financial data are “smaller reporting companies” who expect to have less than $75 million in publicly held common stocks following the IPO.

Management’s Discussion and Analysis: is actually written by management giving them an opportunity to talk about their perspective on the company’s future. This section usually includes their opinions on the company’s financial condition including changes and results in specific operations. As an investor, this section is meant to help you understand certain changes the company has gone through while also giving them an idea of what the future may hold for the company, at least according to management.

Business: is a pretty self explanatory section. Here you will find the company’s brands, products, or services in addition to their target markets and any significant key players in the supplying and consumer audiences that the company is dependent upon. Some companies may also expand on the current state of competition in their niche. Here you will also find a section titled “Legal Proceedings” offering information on any past litigations the company has been involved in, if it is applicable.

Management: gives you general biographical information regarding upper management including the directors and executive officers of the company.

Financial Statements and Notes: is one of the last important sections to look at as it offers reports on the company’s finances, current conditions, and performance. Similar to their requirements in Selected Financial Data, “emerging growth companies” and “smaller reporting companies” only have to include two years of audited financial statements in their Prospectus Summary instead of the standard three years for other companies launching IPOs.

Full Disclosure

Financial reportWhen a company is being underwritten by an investment bank, they are required to disclose most of their financial information, as well as some of their processes in their prospectus and filing with the SEC. This is great for the investors who are trying to make sense of a company without any significant history. However, this information is also freely available to their suppliers, customers, and most importantly their competitors, heavily diminishing competitive advantage.

Lock-Up Period

Once a company goes through the process of going public, it must go through a 3-24 month period of “lock-up” where company officers are required to hold their investments without selling. While 90 days is the minimum period required by the SEC (Rule 144), most underwriters require a longer period of lock up. It’s important to know when this period ends. Officers who previously were legally bound to keep their shares, often times rush to sell and capitalize on their investment, causing downward pressure on the price of the stock.

IPO’s Only Happen Once

Many brokerages are quick to point out that IPO’s are a once in a lifetime opportunity that will get you in on an investment at the beginning. While this does have a certain appeal, the most important thing to consider when choosing an IPO, or any other financial product, is this a good investment? If you can’t seem to justify answering “yes” to that question, even after hours of research, than it would not be a logical decision to invest. While IPO’s do occur only once in a lifetime per organization, there are always multiple private companies going through the process. It’s safe to say that there will be plenty of opportunity in the future to get in on that ‘ground floor’ when both the research and your gut align.

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How to Invest In a Penny Stock IPO


How to Invest In a Penny Stock IPO

Penny Stock IPOHow 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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IPO Requirements for the Individual Investor


IPO Requirements can make obtaining shares very difficult

ipo requirements

Similar to the IPO requirements met by firms going public for the first time, individual investors must meet specific guidelines before being permitted to purchase them. Oftentimes before a firm trades publicly they sell their shares to underwriting firms who in turn sell the shares according to their own needs and allotments. It is difficult for individuals to buy IPO shares because of the restrictions placed on them in regards to income, net worth, trading patterns, and activity level as a trader with their trading company.

There are no governmental regulatory IPO requirements concerning the way a firm sells their IPO units. Consequently, underwriters will likely levy heavy considerations on the individual investor such as requiring that they have a minimum net worth and relevant investing goals, a substantial income, specific current securities holdings and other factors. Some trading houses have their own un-circulated IPO shares that they may offer to individual traders. These firms may require that the investor’s trading account be active and in good standing, have a minimum cash account balance, and become a member of a more expensive, or premium, account.

Meeting IPO Requirements

It is sometimes very difficult for the individual to obtain IPO shares due to the underwriting process. For one, investors with a history of ‘flipping’ or selling their acquired shares within the first day to make a profit will usually be refused. Individual investors should seek IPO shares from underwriting companies with a large percentage of individuals as clients. Most other firms will seek out the more wealthy investors or institutions because of their acknowledgement of risk and their long-term staying power. When demand is more than the available supply, initial public offerings are considered ‘hot’ and the underwriters will undoubtedly sell them to their most valued customers.

The general IPO requirements may seem oppressive because they were, by nature, designed to be that way. The individual investor can realistically obtain them because it is not possible for a brokerage house to guarantee the sail of IPO’s to anyone. As long as the specific conditions can be met, anyone may own initial public offerings.

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How A Reverse IPO Affects Market Shares


A REVERSE IPO SOUNDS COMPLICATED — IN FACT, IT IS THE EXACT OPPOSITE

reverse ipo

A reverse IPO may be an unfamiliar process to many.  If you have ever watched television or a movie about the corporate world, you may have heard the phrase “merger” or “hostile takeover” used frequently to demonstrate the buying power of public investment.  Yet the process of purchasing up a company’s shares in a takeover is a lengthy and expensive procedure.  Many times, it is more profitable for a private company to purchase a public company instead of going public; this called a reverse initial public offering, or IPO.  An IPO exists when a company initially goes public, giving investors the choice to purchase shares at a lower base price in the hopes of success and increased market share.  A reverse IPO will use the same name, structure, and facilities of the prior corporation (called a shell company) while installing new management and employees.

WHY GO THROUGH WITH A REVERSE IPO?

The advantage of going public with a corporation involves the ability to command a higher price for your securities.  Yet the amount of paperwork and red tape required for this to occur makes it a fearsome challenge for many companies.  In addition to hiring legions of attorneys and accountants, the government must investigate records, and the initial stock price may become diluted.  With a reverse IPO, the shell company already exists as a public entity and does not need to be altered or reconstituted.  Conventional IPOs have a deal of risk, as investors may not know the full financial history needed to make a purchasing decision, while the information available through shell companies makes it much more amenable to investment.  Furthermore, market conditions that could affect share prices cannot be helped in a conventional IPO, but a reverse IPO may time the merger and offering to coincide with favorable economic weather.

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To Invest or Not to Invest: Skull Candy IPO


Going Public: Skull Candy IPO

skull candy ipo

For many people, the recent news of Skull Candy IPO is not a surprise. The company has been at the top of the headphone market for nearly a decade, with their high quality, stylish designs. As a private company they received backing from hip-hop superstars such as Snoop Dog and Jay-Z. They were also known for their sponsorship of numerous bikers, boarders and surfers. With a loyal customer base and a trendy product, it is no surprise that CEO Rick Alden wanted to expand the company’s capital with a Skull Candy IPO.

Skull Candy IPO: A Good Investment?

The question on many investors’ minds, however, is whether to invest in the new and improved, public Skull Candy. Many have been wary for a number of reasons. For one thing, Skull Candy has a lot of competition. There are many other headphone companies with years of experience on the public market. Companies such as Sony, JVC and Panasonic may not be as trendy at the moment, but they are household names. Skull Candy IPO is underwritten by Bank of America, which has far less brand value than the big name companies that underwrite their competitors. To make matters worse, there have been allegations that Skull Candy’s product is unreliable. Some consumers have reported a drop in quality that has resulted in a broken product within weeks of purchase.

Rumors and competition aside, however, Skull Candy IPO looks to be a good, solid investment. Their customer base, the bikers, boarders and surfers, are known for being incredibly loyal to the brand. Additionally, Skull Candy has proven itself to be a moneymaker. Their sales increased by over 35% between 2009 and 2010. They even ended 2009 with a profit. In spite of a high level of competition and a number of understandable setbacks, Skull Candy IPO may be a very good investment indeed.

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