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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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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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IPOs to Watch in 2013


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IPOs to Watch in 2013 | How Things Are Shaping Up

IPOs to watch 2013With 2013 moving into the home stretch, it has already been quite a year for Initial Public Offerings (IPOs) in 2013.  While some of the high profile IPOs that Wall Street has been anticipating may be pushed off until 2014, there are still plenty of IPOs to watch in 2013 and plenty of 2013 IPOs that are worth considering for investment in the post-IPO market.  The hot 2013 IPO outlook is being driven by the improving economy, the Jump-Start Our Business Start-Ups (JOBS) Act, and the wave of second generation Internet companies that have matured to the point that they are ready to undergo IPOs to raise additional capital and unlock value for early investors and company insiders.

IPOs to Watch in 2013 | Upcoming IPOs

Upcoming IPOsThe following are some of the top potential IPOs to watch in 2013 that could occur during the remainder of 2013:

Square – Square is a major player in the rapidly growing online payment processing and electronic payments industries.  Square’s payment processing reader can be attached to just about any mobile device, including smart phones, which allows merchants of all sizes to accept credit card payments.  Square processes well over $6 billion per year in credit card payments and reaps hundreds of dollars in fees per year from the payments processed through their financial network.  While Square is not the only company in the online payment processing and electronic payments business, they are one of the leaders in these fast growing business segments, and is sure to be a hot IPO.

Eventbrite – Eventbrite is in the ticket processing and event planning business segment. The company sells over 100 million tickets annually and generates revenues greater $1.5 billion.  With revenue growing north of 40% over the past few years, many on Wall Street are anticipating the Eventbrite IPO.  Unlike other companies that Wall Street IPO watchers are keeping their eyes on, Eventbrite has been very direct about their intentions to go public as soon as possible via an IPO.

Dropbox – Dropbox is one of the leading players in cloud based online file storage and file sharing, which are both fast growing business segments, as Internet users’ need for file storage and sharing increases.  The company is experiencing rapid growth in users, including a number of Fortune 500 clients.  Dropbox’s online file storage and file sharing services are provided in a tiered price structure, from free but limited services to extensive services that require a monthly fee.  Many of the company’s users are currently using the free service, and therefore the company has great potential to increase revenue in the future.

Gilt Groupe – Gilt Groupe is a leader in the popular Internet phenomenon known as “flash sales”, which involves advertising sales quickly and at deep discounts.  The sales are conducted through the company’s Internet portal.  The company has grown quickly in recent years, and hopes to use the proceeds from the IPO to expand into other segments of the flash sales market.

LivingSocial – With the largest “daily deals” portal on the Internet, Groupon, rebounding during 2013, there has been speculation that LivingSocial, the second largest “daily deals” portal, will follow Groupon into the public stock arena via an IPO.  The LivingSocial IPO may be driven by the necessity to raise capital, as the company may not have sufficient capital before it becomes profitable.

IPOs to Watch in 2013  | Hot Stocks In The Post-IPO Market

Post IPO StocksThe following are some of the top IPOs that have occurred in 2013.  These post-IPO stocks may be worthy of consideration for trading or long term investment, after proper due diligence is performed.  Keep in mind that the end of an IPO’s “quiet period” often causes a spike in the price of a post-IPO stock, as stock analysts make “buy recommendations” and post-IPO companies are free to make forward looking statements.  Another important date to keep under consideration when assessing a post-IPO stock is the “end of lockup period” date.  This is the date at which company insiders and other large early investors can sell their post-IPO shares into the publicly traded stock market.  While not always the case, the end of lockup period is often followed by a selloff in a post-IPO stock, as additional shares enter the market and put downward pressure on the stock’s price.

  • RetailMeNot, Inc. (NASDAQ:  SALE) – RetailMeNot, Inc. is the leading digital coupon Internet portal.  The company underwent an IPO in July 2013.  Since digital coupons are such a strong and growing business, and there are so many consumers looking to save money using coupons, the growth potential for the post-IPO shares of SALE is great.
  • Marketo (NASDAQ:  MKTO) – Marketo, Inc. provides cloud-based marketing software platform that enables organizations to engage in modern relationship marketing in the United States. Its software platform enables the execution, management, and analytical measurement of online, social, and offline marketing activities and customer interactions. The company has recently reported soaring revenues but increasing losses, which make it a risky investment, but a possible buyout candidate.
  • Stemline Therapeutics (NASDAQ:  STML) – Stemline Therapeutics, Inc. is a clinical-stage biopharmaceutical company that researches, acquires, develops, and commercializes proprietary therapeutics that target cancer stem cells (CSCs) and tumors.  STML’s stock price has been on a tear since June 2013, when the Food and Drug Administration (FDA) approved orphan drug designation for the company’s drug called SL-401, which is designed to treat a rare blood disease called blastic plasmacytoid dendritic cell neoplasm.
  • ExOne (NASDAQ:  XONE) – The ExOne Company develops, manufactures, and sells three-dimensional printing machines and printing products.  Three-dimensional printing is a new type of manufacturing in which products are made on-site in a similar manner in which images are printed on paper.  The company has seen revenues soar, as Fortune 500 hundred companies such as Ford Motor Company and Boeing Aviation have become customers.

There are many IPOs to watch in 2013.  The key to successful IPO trading and investing is to identify the IPOs that appear undervalued on their IPO date or in the post-IPO market.

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Successful IPO Trading Strategies


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An Overview of the IPO Process

IPO ProcessDeveloping a clear understanding of the Initial Public Offering (IPO) process is important before delving into IPO trading strategies.  IPOs are an important part of the capital raising process in a market based economy.  Young and growing companies have a number of ways of raising the capital they need to initially expand and grow, from raising private funds to selling bonds.  Eventually, raising capital via private sources and the bond market reaches a maximum point and companies need to look for other sources of capital, which is where the stock IPO market plays an important role.

An IPO is just as its name implies, the first offering to the public of company shares.  The IPO process is a rather long, complex, and uncertain process, as ultimately market demand and conditions dictate whether or not an IPO can be completed.  The first step in the IPO process is an indication of interest by a private company looking to undergo an IPO and become a publicly traded company.  A private company will approach Wall Street investment banks, such as JP Morgan or Goldman Sachs, to discuss whether a stock IPO is a suitable way of raising capital.  If a stock IPO is a viable capital raising mechanism, the private company will sign a contract with an investment bank to manage and underwrite their stock IPO.  The investment bank collects a fee when the IPO occurs that is partially based on the ultimate value of the IPO.

The investment bank will assess market conditions and whether there is sufficient investor interest in the company’s shares to undertake an IPO.  If the IPO is ready to move forward, the next step in the IPO process is the filing of a S-1 securities registration statement with the United States Securities and Exchange Commission (SEC).  The S-1 filing is a very critical IPO document that IPO investors need to take a close look at.  The S-1 document includes:

  • the structure of the IPO
  • the financial condition and outlook of the company proposing the IPO
  • how the company intends to use the proceeds from the IPO

IPO Trading Strategies
The S-1 essentially explains a company’s internal operations, sources of revenues, potential business risks, the state of a company’s finances, and their plans for using the money raised from an IPO.

After the SEC approves an IPO S-1 filing, a company will undertake a “road show” to provide investors a chance to meet company management and ask questions.  The IPO underwriters set a date and price for the IPO, based on investor demand for IPO shares.   The stock then trades as a public company stock on a public stock exchange and the post-IPO stock price is determined by market forces.

IPO Trading Strategies | How to Buy IPOs

There are three ways to buy an IPO, each of which involves different IPO trading strategies.  All of the strategies involve various degrees of risk, due to the volatile nature of IPO trading.
SecondMarket Logo

  1. Buying An IPO Before It Goes Public in the Private Stock Trading Market – A not so well known fact about private stock is that it can often be purchased through private stock trading platforms, such as SecondMarket.com.  If made available by company insiders, private company stocks that are likely to enter or are already in the IPO pipeline can be purchased by forward-looking investors.  The main limitation with this IPO trading strategy is that you have to be an accredited investor to buy shares on private stock trading platforms.  Individual investors can buy into mutual funds and exchange traded funds (ETFs) geared towards private stock investing to get involved in this aspect of IPO trading.  While this strategy can pay off handsomely, if a private company is purchased for just a fraction of the eventual post-IPO trading price, this strategy has some significant risks.  First off, a private stock may never go public in an IPO and the private stock may never realize full valuation.  Second, as was the case with Facebook (FB), the privately traded pre-IPO price can occasionally be higher than the public trading price, once market forces take over after an IPO.
  2. Buying An IPO Before It Goes Public By Obtaining An Allotment of IPO Shares – When an IPO has been approved by the SEC, the underwriters put out notices to stock market participants to see if they are interested in buying pre-IPO shares.  These shares are known as pre-IPO allotments, and are generally given out to preferred and large brokerage firm customers; however, some retail brokers, such as E-Trade and Fidelity Investments, set aside IPO shares for individual investors.  This is the least risky of the IPO trading strategies, since IPOs often trade higher while trading publicly after an IPO, at least initially and the risk of buying a private stock that may never go public is removed.
  3. Buying An IPO After It Goes Public Through A Public Stock Exchange – After an IPO has occurred, the price of the post-IPO shares are determined by market forces.  Buying stocks that recently underwent an IPO is a risky trading strategy because the stocks have no trading history and are often trade with a great amount of volatility.  Some post-IPO stocks rally after becoming publically traded stocks, while others incur sell-offs.  The key to successfully trading post-IPO shares is to identify and buy IPOs that market participants have undervalued for various reasons, and to avoid ones that are clearly overhyped and overvalued.  This strategy should be implemented with tight stop-loss orders to protect trading capital.

 

One post-IP trading strategy that can be quite effective is to buy shares a few weeks after an IOI occurs, then wait for the IPO quiet period to end.  The IPO quiet period is an SEC mandated amount of time both before and after an IPO in which analyst coverage and company news must be limited in nature.  Once the IPO quiet period ends, analysts often issue buy ratings for the stocks and the companies that underwent IPOs issue positive forward looking press releases, both of which can put upward pressure on the price of post-IPO shares, providing a potentially profitable trading opportunity.

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