The market demand for initial public offerings (IPOs) is strong, as investors search for additional sources of opportunities to make money.
While there have been some poor-performing IPOs this year, there have also been numerous stocks that have debuted to stellar gains. With strong market conditions for new issues, we are seeing a rise in the flow of companies wanting to come to the capital markets and take advantage of the current euphoria for IPOs. The reality is that the increase in IPOs also suggests some froth in the stock market that investors need to be careful about.
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The biggest and most highly anticipated IPO this year was, of course, Twitter, Inc. (NYSE/TWTR), which has made many of its early investors rich. The stock was priced at $26.00, surged to $45.00 on its first trading day, and is currently trading at a new high above $50.00. The amazing thing is that Twitter doesn’t make money, and there’s no timeline as to when this will happen, as the company tries to monetize its users. (Read my take on Twitter in “How Small Investors Can Still Get a Piece of Twitter.”) Apparently, the stock market doesn’t really care if an IPO makes money, as long as the theoretical potential is there.
Facebook, Inc. (NASDAQ/FB) was another hyped-up social media IPO that had more than a billion users when it first debuted but hadn’t figured out how to make money from them. The stock actually fell down to the $17.00 level from its $45.00 IPO high, but this was a great buying opportunity, especially if you believe the company could turn its massive users into revenues. What Facebook did do was focus on the mobile advertising market, which is turning out to be a good strategy; albeit, the company still trades at an extremely high valuation compared to Google Inc. (NASDAQ/GOOG), which continues to be the “Best of Breed” in the Internet services space. Facebook was just added to the S&P 500—a move that will add buying support for the stock.
Another Internet services stock that faced some tough hurdles but appears to have found its path and is now heading higher is Groupon, Inc. (NASDAQ/GRPN). The stock has gone up nearly 400% in just a little more than a year, and in my view, it could continue to move higher in 2014.
The stock market needs more IPOs, especially the big names.
Chinese IPOs have been slow to come, given the changes in reporting requirements in the U.S. capital markets and the desire of Chinese companies to list in Hong Kong and China instead. The Hang Sang exchange in Hong Kong could see more than one hundred new issues in 2014, including the highly anticipated Shuanghui International Holdings Limited, which is looking at a massive $5.0 billion IPO in 2014. Shuanghui was the Chinese company that acquired U.S.-based pork producer Smithfield Foods, Inc. It’s too bad the company is not listing in the U.S., as it could be a great investment opportunity.
For the U.S. market, there is some hope that China-based Internet giant Alibaba Group may list in the U.S. next year, but the odds are in favor of the company listing in Hong Kong instead.
Another interesting IPO that could debut next year in the U.S. is coupon-clipping site Coupons.com.
Whatever the case, the flow of IPOs next year will be largely dependent on the strength of the equities market, but there will be some intriguing issues that investors will want to keep an eye on.