Thanks to major initial public offerings (IPOs) like Alibaba Group Holding Limited (NYSE/BABA), 2014 was a bonanza for IPOs and a definite banner year. Now there are some highly anticipated IPOs to watch for in 2015. Investors may want to keep an eye on the following top IPOs in 2015: Airbnb, Pinterest, Spotify, Uber, and Xiaomi. (More on these a little later.)
IPOs offer investors a unique opportunity to get involved in a publicly traded company on the first day of trading. With visions of quick money to be made, many investors throw caution to the wind, ignore potential risks, and jump in at any cost.
Following a year that saw investors help the 275 companies with IPOs on U.S. exchanges raise $85.0 billion(1), representing the best year in terms of number and value since 2000, investors may be duped into thinking making money on IPOs is a sure thing in 2015. But it’s not. Despite hot IPOs generating large amounts of news coverage and analysts waxing on about their unlimited potential, the fact of the matter is that IPOs aren’t always a good investment. The key is to know when the hype is warranted and when to take a wait-and-see approach instead.
Don’t Always Follow the High-Profile IPO Hype
Case in point: Facebook, Inc. (NASDAQ/FB), one of the most highly anticipated IPOs of 2012, was a bust. On May 18, 2012, Facebook opened at $42.05. Over the ensuing months, Facebook’s share price continued to decline, touching a low of $18.75 on August 20, 2012. Long-term investors were probably a little concerned, but also willing to wait it out; and today, they’re likely very glad they did. Opportunistic investors, on the other hand, saw their investment slip away.
In November 2013, Twitter, Inc. (NYSE/TWTR) made its debut at $45.10. Unlike Facebook, its share price soared. By the end of the year, Twitter had hit a high of $72.88. But in a world where valuation and fundamentals matter, Twitter has since fallen on hard times. Currently trading at $37.11, Twitter is down 18% from its IPO price.
2014 was the year that saw Alibaba Group Holding Limited (NYSE/BABA) raise a record-breaking $25.0 billion during its IPO. On Friday, September 19, Alibaba opened up more than 35% above the $68.00 IPO price. While the share price has since pulled back from its $120.00 high, it’s still trading above its IPO at around $100.00.
Despite all the attention, Alibaba wasn’t the top-performing IPO of 2014. That title goes to the lesser-known Radius Health, Inc. (NASDAQ/RDUS). The developer of treatments for patients with osteoporosis (and other serious endocrine-mediated diseases) went public on June 6 at around $8.00 and ended the year up more than 380%.
So as you can see, the top-performing IPOs aren’t always the ones that make the front page, and those that make the front page don’t always live up to the hype. This is an area in which investors need to exercise caution and due diligence.
Top IPOs to Watch For in 2015
With the stock markets in a five-year-plus bull run and the U.S. economy showing signs of sustained growth, many investors are hoping 2015 will be just as exciting in the IPO area as it was last year. Accordingly, here are the top IPOs for investors to watch out for this year:
There’s a good chance Airbnb, an online room-renting service, will go public this year. In August, the company raised an eye-watering $475 million in funding.(2) The new capital brings Airbnb’s total funding to $801 million.
With more than 70 million users, Pinterest is one of the fastest-growing social media sites. But like many social media sites, it needs to prove it can make money—and that it can stay relevant. Still, 52% of Pinterest subscribers consult it while in-store shopping and 47% say they made a purchase as a result of Pinterest.(3) Brands can certainly make money with this site, which makes it an attractive IPO for 2015.
The best-known music streaming service has more than 12.5 million paid subscribers and 50 million active users.(4) In 2013, it had revenue of more than $1.0 billion. Google considered buying Spotify last year but found the valuation, estimated to be in the range of $4.0 billion to $5.0 billion, too high.(5) Google’s initial interest, however, goes to show investors that this is one potential IPO to keep an eye on.
The car sharing service app Uber is one of the most highly valued private companies in the world. With a presence in more than 50 countries (and counting) and a $41.0-billion valuation, a lot of investors are anxiously awaiting to see if Uber IPOs in 2015.
Chinese smartphone maker Xiaomi has a valuation of $45.0 billion. The third-largest vendor behind Samsung Electronics Co. Ltd. and Apple, Inc. (NASDAQ/AAPL), Xiaomi expects to sell 100 million phones in 2015.(6) The company expanded its international footprint into India, Singapore, Malaysia, the Philippines, and Indonesia in 2014. In 2015, Xiaomi hopes to make inroads in Thailand, Russia, Mexico, Brazil, and Turkey, all of which could help Xiaomi become China’s first global consumer brand.
The Takeaway Point for Investors Interested in IPOs…
Trendy companies might hog all the IPO news, but when it comes to investing, you need to do your research. Unfortunately, getting information on companies about to go public is difficult; private companies don’t release information to the public. Suffice it to say, they also don’t have a lot of analyst coverage.
That doesn’t mean you shouldn’t try and get in on an IPO. A lot of investors who got in on an investment at the IPO price have been richly rewarded. But like investing in any stocks, you need to do as much homework as possible before you consider making a move to buy.