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IPOs On Track For Another Big Year

10 March 2015 in Trading Ideas

There may be not be another Alibaba in plain sight, but many market observers expect this year’s initial public offering performance to rival the huge output of 2014.

Last year, Alibaba’s $25 billion debut helped the US IPO market post its best year in more than a decade. Listings of companies raised $96 billion across 293 deals in 2014, according to data from Dealogic cited by the Wall Street Journal.1

What’s more, IPOs in 2014 delivered share-price gains that beat the broader market, rising 18.9% from their offer price vs. a gain of 11.4% in the S&P 500. Alibaba, for example, jumped 38% on the first day of trading, and proceeded to tack on another 13% into the end of the year, before giving those gains back in the last six weeks.

IPO-related investments have also performed well this year. The Recent IPOs motif, a portfolio of stocks of companies that listed in the past two years, has gained 9.6% in the past month. Over that same time frame, the S&P 500 has gained 1.6%.

In the past 12 months, the motif has increased 9.5%; the S&P 500 is up 13%.

To be fair, some evidence suggests that the IPO market isn’t keeping pace with last year. According to an article by VentureBeat, initial public offerings through the first two months of this year were down to 26, a drop of 35% from a year earlier.2

However, Renaissance Capital partner Kathleen Smith told CBSMoneywatch that she isn’t concerned because 2014’s data includes many energy IPOs, a sector that has fallen out of favor since oil prices have collapsed.3

In addition, she added, last year’s numbers were also skewed by the January 2014 IPO of Santander Consumer, a US lending arm of the Spanish bank, which raised $1.8 billion.

“We are just a little off in the timing,” she said, “the quarter isn’t over yet.”

Certainly, some notable IPOs in 2015 have already performed well. Handicraft sales site Etsy filed an IPO prospectus last week valuing itself at $1.7 billion with plans to raise $100 million, suggesting the demand for IPOs remains healthy, Moneywatch said.

Should rumored deals for high-profile companies such as Uber and Airbnb come to pass, 2015 may provide rewards that IPO investors hope could approach the results of 2014’s bounty.

1Telis Demos, “After Banner Year, IPO Parade Marches On,” wsj.com, Jan. 1, 2015.

2Chris O’Brien, “What bubble? The U.S. IPO market has completely collapsed so far this year,” venturebeat.com, March 9, 2015, http://venturebeat.com/2015/03/09/what-bubble-the-u-s-ipo-market-has-completely-collapsed-so-far-this-year/.

3Jonathan Berr, “2015 looks like another solid year for IPOs,” cbsnews.com, March 6, 2015, http://www.cbsnews.com/news/2015-looks-like-another-solid-year-for-ipos/, (accessed March 9, 2015).

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