Number of Public Offerings Is Up, but Few Returns Setting Records
This year has already set a record for dollars raised in initial public stock offerings.
But for the small investors who usually have to wait to buy the stocks after they begin trading, returns on IPOs this year haven’t set any records. And that might have some IPO players wondering why they’re taking a chance with high-risk new issues.
As of last week, the dollars raised nationwide in IPO deals this year reached $71.9 billion, surpassing 1999’s full-year record of $68.7 billion, according to Thomson Financial Securities Data, a data tracker.
A total of 387 IPOs have been sold so far this year, up from 375 through the third quarter of 1999. California-based companies account for about 30% of this year’s offerings.
But for the year to date, the average IPO stock overall is down 3% from its closing price on the first day of trading, according to CommScan, a financial research service.
Even for investors getting in on the deals at the offering prices, the rewards are less substantial: In the third quarter alone, the average IPO rose 44% on its first trading day, CommScan says. That compares with an average first-day gain of 60% for all deals this year. The latter figure was boosted by the tremendous price gains in the first quarter.
To be sure, there have been some stars this year, including many California technology IPOs. Menlo Park-based Nuance Communications (ticker symbol: NUAN) is the best-performing IPO so far this year, CommScan data show. Shares of the Internet software firm, at $121.69 on Friday, are up 616% from their $17 IPO price in April, and up 259% from their first-day close of $33.94.
Other big winners include Fremont-based Centillium Communications (CTLM), a broadband communications-related company, whose shares are up 405% from their offering price and 320% from their first-day closing price.
Outside the tech field, one surprise has been Krispy Kreme (KREM), the Winston-Salem, N.C.-based doughnut retailer. It came public at $21 a share on April 5, ended the first day at $37, and now is at $83.75, a 298% gain from the offering price.
Though there have been more offerings overall this year, a relative handful account for a big chunk of the dollars raised: There have been 12 IPOs this year that raised more than $1 billion in capital, and those 12 deals made up 40% of total IPO dollar volume, according to Thomson Financial.
To put those deals in further perspective, there have only been 39 $1-billion-plus deals in history, including this year’s.
This year’s megadeals include the $9-billion offering of AT&T;’s tracking stock for its AT&T; Wireless business. But the stock (AWE) has been among the year’s IPO losers: At $20.75 on Friday, it’s down 30% from its IPO price of $29.50.
More mega-IPOs are on the way. Verizon Wireless, a company that includes the wireless assets of the former Bell Atlantic and GTE Corp. (now Verizon Communications) and Vodafone Group, hopes to raise $12 billion via an IPO in November.
Due to the megadeals, the average IPO has increased in size nearly 50% this year, to $186.4 million compared with $126 million last year.
Given the record dollar amount of IPOs sold this year but weaker average stock performance, institutional investors’ appetite for new stocks might be waning, some experts say.
Typically, more than 80% of new-issue shares are sold to institutional investors, with small investors getting the rest. With many deals, it’s still difficult for individual investors to get in at the offering price.
But “from what I’ve seen, deals are getting harder to get done, and that’s when you start to see individual investors get access,” said Ken Pearlman, director of research for Firsthand Capital Management, a San Jose-based investment firm. “They [investment bankers] normally try to place deals with institutional investors, but when they can’t, more of the deal, maybe 50% to 60% instead of 10% to 15%, will go to retail.”
The question then becomes: Should small investors want a piece of offerings that institutional investors have shunned?
It might depend on just how weak the market backdrop is. CommScan data show that of the 20 best-performing IPOs this year through the third quarter (measuring latest stock price versus the IPO price), 13 came to market between late March and late May--when tech stocks in general were crashing.
In other words, many buyers who took a chance on deals in a troubled market have, so far, reaped some large gains.
Of course, that isn’t a foolproof strategy: The AT&T; Wireless deal was an April offering.
In the fourth quarter, Wall Street is expecting a few blockbuster deals besides the Verizon Wireless offering.
Fiber optics is expected to remain a hot field. San Jose-based Oplink Communications Inc., a fiber-optic equipment maker for the telecom business, hopes to sell 13.7 million shares at $14 to $16 each through underwriters led by Robertson Stephens. The deal, which could come as early as this week, had originally been expected to price between $10 and $12 a share.
Another deal likely to be closely watched: Transmeta, a Santa Clara maker of hardware and software computer technologies for mobile computers, is expected to raise $200 million through underwriter Morgan Stanley Dean Witter.
Transmeta is a rival to Intel Corp. in the market for low-power chips for mobile computers.
One of the most anticipated IPOs will be from Loudcloud, a Sunnyvale-based Internet consulting company headed by former Netscape Communications Corp. exec Marc Andreessen. The company expects to raise $150 million through underwriter Goldman, Sachs & Co., but hasn’t yet specified a price range.
Biotechnology companies also will be active in the market. DrugAbuse Sciences, which calls itself the first biotech company dedicated to developing and marketing therapies for drug and alcohol abusers, hopes to raise $52 million this quarter.
This week, Asia Global Crossing Ltd., a joint venture of Global Crossing, Softbank Corp. and Microsoft Corp., plans to raise $995 million in an IPO. Other major deals expected this week include an offering from Coach Inc., the leather and luxury goods retailer.
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Bloomberg News was used in compiling this report. Remember that initial public offerings are highly speculative and not suitable for all investors. Debora Vrana, who covers investment banking and the securities industry for The Times, can be reached at debora.vrana@latimes.com or Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012.
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IPO Performance Flattens
There are amny ways to measure the performance of initial public offerings. One interesting index is the Bloomberg IPO Index, which measures the price performance of all major IPOs in their first year of trading. The index, which now covers 415 stocks, has flattened after diving in spring, then recovering in June.
Friday close: 1,422.31
Source: Bloomberg News
