Investors Show They’re in the Market for IPOs
Google Inc.’s stock debut may have grabbed the headlines in 2004, but the revival of the market for initial public offerings was no one-hit wonder.
In fact, the IPOs of 15 companies -- three of them based in Southern California -- have racked up even bigger post-offering gains than the 119% jump in the price of Google’s shares since their debut in August.
The comeback of the IPO market has been a hot story on Wall Street, in part because it suggests that many investors are willing to take risks again.
The dot-com crash that began in 2000 caused the IPO market to shrivel and damped many companies’ hopes of raising money for growth.
That changed this year. “In a lot of respects 2004 surprised people -- not just the sheer volume of deals and proceeds raised but also the returns,” said Paul Bard, senior analyst at Renaissance Capital’s research website IPOHome.com in Greenwich, Conn.
“After the fallout from 2000 and three very challenging years, those who dared to jump back in were rewarded,” he said.
The average IPO this year has risen 30% from its offering price, surpassing the gains of major market indexes and marking the best showing since 1999, according to IPO Home.com.
The number of deals, 216, and the money raised, $43 billion, were up threefold from 2003 levels.
And if investors remain interested, many more new issues could arrive in 2005: About 120 IPOs are in the wings, more than twice the number of a year ago.
The pickup in activity has helped not only companies seeking expansion capital, but also stock market investors hunting for new opportunities, venture capitalists who provide seed money for young companies, and law firms and other service companies that work on the deals.
“There is a virtuous network effect that helps the economy,” said Tom Taulli, co-founder of CurrentOfferings.com, a research firm in Newport Beach.
California has benefited in a big way from the rebound in IPOs. Fifty-seven of this year’s new stocks have been from California-based companies. They raised $7.4 billion in all, led by Mountain View, Calif.-based Internet search giant Google, which raised $1.7 billion.
In 2003, the state’s 17 IPOs raised a total of $1.7 billion.
The stock of fingerprint-identification systems maker Cogent Inc. of South Pasadena is the third-biggest gainer among IPOs of U.S. companies this year, according to IPOhome.com. The company went public at $12 a share on Sept. 23. The stock has since zoomed 188%, closing at $34.53 on Nasdaq on Wednesday.
Among other Southland IPOs, online retailer Ecost.com Inc. of Torrance has gained 162% from its August debut, and Internet search firm Interchange Corp. of Laguna Hills is up 133% from its October launch.
Glendale-based DreamWorks Animation SKG Inc., which developed the “Shrek” movie franchise, also has received a strong reception from investors. The stock was priced in October at $28, higher than expected, and has climbed 33% since, to $37.19.
The benefits of the IPO rebound have extended beyond U.S. borders. Investor interest in the booming Chinese economy was evident in the year’s two best-performing new stocks: Shanda Interactive Entertainment Ltd., which creates online games, is up 259% from its offering price; and 51job Inc., an employment ad firm, is up 257%. Both are based in Shanghai but list their shares on Nasdaq.
Many analysts see the IPO market’s momentum carrying into 2005, in part because there is pent-up demand among investors and deal makers alike. What’s more, many of the deals in the pipeline are from companies that have good stories to tell, experts say.
One deal likely to make noise in early 2005 is from San Francisco-based Dolby Laboratories Inc., which plans a $460-million offering. The company, founded by audio technology pioneer Ray Dolby in 1965, holds more than 50 patents and collects a stream of licensing fees from entertainment products.
Fast-growing online ad firm Fastclick Inc. of Santa Barbara, which Wednesday said it planned a $92-million IPO, also could be a hot ticket early next year, Taulli said.
A spillover effect from robust IPO demand can be seen in the merger and acquisition market. Santa Monica-based Rent.com, which had been expected to file for an IPO, agreed last week to be bought for $415 million by online commerce giant EBay Inc.
Although the return of many dot-com IPOs might remind some investors of the market bubble days of 1999 and 2000, IPO companies in general are a far more solid lot today, analysts contend.
Bard said 64% of the companies that have gone public this year were already profitable, a far cry from the days when dot-com firms with no revenue or profit persuaded investors to make a leap of faith.
Although analysts say the IPO market appears sound, they caution investors that the easiest gains may already have been made. Earlier this year, many IPOs had to slash their prices to entice buyers, which helped the stocks tack on bigger market gains later. Even Google’s offering in August was initially considered a flop.
In recent months, however, underwriters have priced deals more aggressively, bringing in more money for the companies but leaving less room for public investors to benefit from any run-up in subsequent trading.
For companies riding the IPO wave, going public often brings more than just cash for growth.
“More and more people recognize the benefit of our technology,” said Ming Hsieh, chief executive of Cogent, who founded the firm in 1990. “We’re better able to compete for bigger jobs.”
Hsieh, 48, a USC graduate who started his career as a research and development engineer at International Rectifier Corp. of El Segundo, became a billionaire in Cogent’s IPO.
But not everything changes when you become a market darling, he added.
“I’m still the same person,” Hsieh said. “I still travel on Southwest and fight for a seat.”
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Hottest 2004 IPOs
Here are the new stocks that have risen the most this year from their initial offering prices.
*--* BRD 2004 BRD IPO IPO Wed. Pctg. BRDCompany date price close gain BRDShanda Interactive 05/12 $11.00 $39.48 +259% BRD51job 09/28 14.00 50.02 +257 BRDCogent 09/23 12.00 34.53 +188 BRDMarchex 03/30 6.50 17.85 +175 BRDVolterra Semicon. 07/28 8.00 21.97 +175 BRDECost.com 08/26 5.80 15.20 +162 BRDKinetic Concepts 02/23 30.00 77.09 +157 BRDJed Oil 04/05 5.50 13.59 +147 BRDRightNow Technol. 08/04 7.00 17.03 +143 BRDInterchange 10/18 8.00 18.65 +133
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Source: Renaissance Capital (IPOhome.com)
