The U.S. IPO market picked up momentum in May and certain trends in investor demands are beginning to coalesce. The apparent interest in blockbuster deals has created a two-tiered IPO market, demonstrating that investors:
- Favor growth companies
- Demand deep discounts on value-oriented IPOs
- Avoid companies with questionable business models and opaque accounting
These demand characteristics explain the asymmetrical results shown by the IPOs offered this month.
|Company Name||Symbol||Offer Date||Return|
The IPO market appears to be in rude health, approaching levels unseen since before the financial crisis. To date, the 36 IPOs priced during April and May have already exceeded the 32 IPOs in the entire first quarter and represents the most active IPO period since 2007. The IPO backlog is approaching its highest level since the tech bubble of 1999 with more than 169 companies having filed to list their shares, suggesting that this level of activity is likely to continue.
Among this month's winners, LinkedIn (LNKD), the world's leading online professional network with over 100 million members, was May's best performing IPO, closing out today's trading 92% above its listing price of $45. LinkedIn jumped 109% in its first day of trading, the fifth largest first day pop in the post bubble era. The largest IPO by deal size was Yandex (YNDX), Russia's leading online search engine, which raised $1.3 billion and has gained 38% since its listing. As the search engine market leader (65% share) in one of the world's fastest growing Internet markets, Yandex has demonstrated exponential revenue growth (66% CAGR since 2006), illustrating the promise of the "Russian Google."
Several high profile companies have or are expected to file soon with the SEC. Dunkin' Brands (DNKN), owner of the Dunkin' Donuts and Baskin Robbins franchises, recently filed to initiate a $400 million IPO. Delphi Automotive, the sixth largest auto supplier in North America, filed what is purported to be a billion dollar deal. Developer of online games Zynga is also expected to file shortly in an attempt to capitalize on the current demand for social media exposure.
Several Chinese Internet companies recently filed with the SEC to join the growing China Tech space alongside Renren (RENN), Jiayun.com (DATE), NetQin (NQ) and Phoenix New Media (FENG), which all priced earlier this month. Cloudary Corporation, a subsidiary of Shanda Interactive (SNDA), will be looking to market its online literature community to U.S. investors, and Taomee is seeking further funding for the growth of its online children's entertainment business.
Not all deals are created equal; the impressive reception of the aforementioned IPOs was not uniform. Of the 20 deals priced so far this month, nearly half of them were pressured to downsize their offering. Freescale Semiconductor (FSL) priced at $18, 22% below the midpoint of its given price range, Lone Pine Resources (LPR) priced at $13, 32% below the given midpoint, and China Zenix Auto (ZX) priced at $6, 43% beneath its target midpoint.
Aftermarket trading has bees similarly discerning. While LinkedIn, Yandex, Jiayun.com and RPX (RPX) have all returned more than 25%, Boingo (WIFI), NetQin and FriendFinder have tumbled due to investor wariness of their growth prospects or competitive positioning. Amidst talk of a second IPO bubble, it is worthwhile to consider that despite the high-flying deals, the IPO market remains selective.