IPOs Past and Future: Alibaba Group Holding Ltd (BABA), Biotech, Uber, and Spotify

One difference between now and the end of the tech bubble is sentiment

Dec 26, 2014 at 1:22 PM
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Close to 300 companies went public in the U.S. in 2014, marking the biggest freshman class since 2000 -- the end of the dot-com bubble. According to Dealogic, those firms raised roughly $95 billion -- a year-over-year increase of more than 50% -- thanks to a record IPO by Chinese e-commerce titan Alibaba Group Holding Ltd (NYSE:BABA) in September.

Other notables that debuted this year: "Candy Crush" maker King Digital Entertainment PLC (NYSE:KING), down 21% since going public in late March; Chinese Internet concern JD.Com Inc (ADR) (NASDAQ:JD), up 11.4% since mid-May; and mobile video concern GoPro Inc (NASDAQ:GPRO), which has advanced roughly 137% since its grand entrance in late June. The Rookie of the Year, on a percentage basis, was Auspex Pharmaceuticals Inc (NASDAQ:ASPX), which has more than tripled since its February debut, thanks to a recent drug-related bull gap.

In fact, biotechs accounted for about one-third of the 2014 IPOs, followed by tech with 57. The average biotech IPO returned roughly 32%, according to data from Renaissance Capital. On average, new stocks enjoyed a first-day jump of 13% in 2014, and returned 17% in the first month. However, around 40% of IPOs priced below their respective ranges.

From a broader perspective, one major difference between 2013-2014 and the end of the tech bubble (1999-2000) is sentiment. The percentage of analyst "buys" on all stocks was 69.6% at the end of 1999, and peaked at 73.1% in June 2000, before the bear market, according to Schaeffer's Senior Quantitative Analyst Rocky White. Now, even with the S&P 500 Index (SPX) assailing record highs, just 51.3% of analyst ratings are "buys." In other words, sentiment hasn't yet reached the "euphoria" stage that accompanies climaxes, suggesting there could be room to run.

SPX and Analyst Buy Ratings since 1996

Looking ahead, the IPO Class of 2015 is expected to have some familiar faces, led by app-based ride-sharing service Uber and rental accommodations issue Airbnb. Digital music service Spotify is also expected to go public, as is web domain issue GoDaddy, fast-casual chain Smashburger, and Chinese electronics firm Xiaomi.


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