IPO market is back with a vengeance, market watchers say

Chrysler, Hilton plan to soon follow Twitter; 'Facebook effect is finally wearing off'

Sep 17, 2013 @ 9:37 am

By Jeff Benjamin

Twitter Inc.'s disclosure last week that it had filed to go public was big news not because it was unexpected but because it is the latest indication of a resurgence in the IPO market.

By the time of the initial public offering, likely in November, it will be 18 months since the now infamous Facebook Inc. (FB) IPO, another hugely popular social-media business that went public with much fanfare and then proceeded to watch its stock price fall off a cliff.

Facebook's stock, which has gained nearly 60% since the start of the year, only started trading above its May 2012 IPO price of $42 a few weeks ago.

The takeaway, according to market watchers, is that the IPO market is back with a vengeance.

“In terms of performance, this has been one of the strongest years since 1995 or 1996,” said Josef Schuster, manager of the First Trust U.S. IPO Index Fund (FPX).

IPO tracking firm Renaissance Capital LLC reports that the average return of the 132 IPOs completed so far this year is 34%.

The Renaissance Capital Global IPO Fund (IPOSX), which purchases IPOs at the time of offering and in post-IPO trading, is up 43% this year.

“The IPO market has produced strong returns for investors recently, and this bodes well for companies seeking to go public, including some of the major names in the pipeline,” said Kathleen Smith, Renaissance Capital principal.

In addition to Twitter, such marquee names as Chrysler Group LLC and Hilton Worldwide Inc. have recently filed to go public.

“The IPO market is picking up partly because enough time has elapsed since the PR catastrophe of the Facebook IPO,” said Ryan Issakainen, exchange-traded fund strategist at First Trust Advisors L.P.

“This is a good time for companies to go public because the market has performed well, and you're getting better valuations, and there's some pent-up demand for new IPOs,” he said. “The Facebook effect is finally wearing off.”

Twitter, which filed confidentially with the Securities and Exchange Commission as a way to keep its financial data private for now, aims to walk the fine line of whipping up enough enthusiasm for the stock but also pricing it to have some upside after the IPO.

“Twitter is a hot issue. The stock is going to fly off the shelves no matter what because it's a good growth story,” Mr. Schuster said.

“Across the spectrum of recent IPOs, companies have had solid earnings and that leads to deal flow, and so far it doesn't look like the momentum is fading,” he said.

The Facebook turnaround is just one high-profile example of the strength of new stock offerings.

As Mr. Schuster pointed out, there are numerous examples of strong performance from recent IPOs.

Pharmaceutical research firm AbbVie Inc. (ABBV), has seen its stock price climb nearly 38% since its January IPO.

Shutterstock Inc. (SSTK), which operates an online marketplace for digital imagery, has gained more than 250% since it went public 11 months ago.

Biopharmaceutical company Stemline Therapeutics Inc. (STML), has seen its stock price climb nearly 265% since its January IPO.

According to Renaissance Capital, there have already been 174 IPO filings this year, compared with 141 for all of 2012.

So far this year, 132 companies have actually gone public, compared with 128 for all of 2012.


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