A Look At The Most Anticipated IPOs Of 2015

David Sterman's picture

Friday, January 30, 2015 - 1:30pm

by David Sterman

An old investing maxim suggests that "as goes January, so goes the year." And when you consider that the major indices wobbled sideways in January, seemingly ending a multi-year uptrend, it is dawning on investors that the year ahead may deliver so-so gains for investors.

That should spell trouble for initial public offerings (IPOs), which tend to only flourish when markets are rallying. However, the recent 66% first-day gain for Box, Inc. (NYSE: BOX) suggests that IPOs are poised for another year of high demand and robust gains. Investors, it seems, just can't get enough of young companies with robust growth potential.

Another Banner Year
To be sure, 2014 was among the best years ever for IPOs. Bankers brought 275 companies public, the best showing since 2000. The $85 billion in proceeds also marks the best year since 2000.

Healthcare (especially biotech) led the way, with 102 deals being successfully priced. Tech stocks were once again in vogue as well. And Alibaba Group Holding Ltd (NYSE: BABA) surely gave the market a nudge, when it raised $22 billion in September 2014. The average IPO in 2014 generated a 13% one-day pop, which explains why investors like to get in on these deals.

What does the year ahead hold for the new issues market? Likely more of the same, but with one key exception: Don't look for energy-related IPOs any time soon. That sector has become a maelstrom of lost capital, and bankers won't even pretend that they can drum up interest. (Then again, M&A in energy may be quite strong, as cash-rich firms identify highly-discounted assets that they can add to their production base.)

In the near term, few buzzworthy names appear poised for an IPO, according to Renaissance Capital. But as we head toward spring, look for the IPO calendar to bloom.

Here's a look at 10 hotly-anticipated IPOs for 2015:

  1. Uber.  The buzz around the business model was overwhelming for much of 2014, enabling the company to raise more than $1 billion in fresh capital. In recent months, Uber's financing rounds have equated to a $40 billion valuation for the company. But Uber has begun to see a backlash, as my colleague Adam Fischbaum noted recently. Concerns that Uber may eventually be subject to tremendous regulatory pressure by local municipalities means that its current backers may be quite anxious for an IPO in coming months. That also may mean that you should steer clear.
  2. Spotify. This streaming music service has become quite popular, ranking ahead of Apple, Inc.'s (Nasdaq: AAPL) Beats service and behind Pandora Media, Inc. (NYSE: P), in terms of user base. Trouble is, Pandora has lost a great deal of luster with investors, having fallen more than 50% from its 52-week highs on concerns about profitability and legal challenges from artists and labels. Spotify's bankers will need to explain how such concerns won't be a drag for this company as well. Translation: Spotify may need to be priced at a discount (Based on various revenue, user and income metrics) to Pandora to generate enough demand for the IPO. The company is reportedly looking to raise fresh capital, which may push back an eventual IPO by a few quarters.
  3. GoDaddy. After spending millions of dollars on annual super bowl ads, this web-hosting service has decided the time is right for a public offering. GoDaddy has roughly 12 million clients, which collectively operate nearly 60 million domain names. The company is expected to sell shares later in the first quarter, with an expected valuation in excess of $4 billion. A lack of profitability has been a consistent concern for this company, though you can expect the investment bankers to pitch clients on the prospects of a sudden spike in operating metrics, which often accompanies the hope and hype of an IPO.
  4. Pinterest. While companies such as Instagram and What's App decided that it was wiser to be acquired than conduct an IPO, this photo-focused social media company has thus far held its options open. After the bumpy rides that investors faced with Facebook, Inc. (Nasdaq: FB) and Twitter, Inc. (NYSE: TWTR), investors may be cautious about taking a stab at Pinterest. If the bankers can't line up enough demand for shares at a price high enough to satisfy the company's financial backers, then a phone call to Facebook, Twitter or Google, Inc. (Nasdaq: GOOG) may be the next move.
  5. Airbnb. This D-I-Y lodging site has been speculated as an IPO candidate for several years. Yet, the fact that it has remained consistently profitable and has minimal capital spending requirements, means that an IPO isn't really needed. Unless of course, management and the company's backers come to conclude that we're approaching a market top for IPOs. (Recall earlier that I noted that 2000 was also a banner year for IPOs.) So Airbnb may finally pull off a deal, simply because the timing has never been better. 

Five other hotly-anticipated IPOs include:

Snapchat. the perfect business model for exhibitionistic Millennials that don't want to leave a trail of their actions.

Dropbox. a me-too business model in a crowded field.

Actifio. a data storage firm that is giving EMC Corp.(NYSE: EMC) and others a run for the money.

SpaceX. Two words: Elon Musk. For some investors, everything else is irrelevant.

Xiamoi. Smartphone manufacturing is a cutthroat low-margin business. This Chinese company appears to be cultivating a lower-cost approach, which is leading to fast-growing market share. Its backers may want to strike while the iron is hot, before market share trends shift once again.

Risks To Consider: IPOs often soar in their early days, only to be hit by massive profit taking once quarterly reports start flowing in. Often times, the bankers use inflated growth projections to sell the deal and an eventual reset is inevitable.  

Action To Take --> Biotech and healthcare firms are likely to comprise the largest niche of IPOs, but their relatively small size keeps them from making any top 10 lists. All of the companies above could be valued well in excess of $1 billion. If you are interested in the solid early gains that IPOs can offer, then it's wise to open an account with a traditional Wall Street firm in order to get access to shares. If you don't have such an account, then these IPOs are solid companies that are best bought after the inevitable pullback in share prices.

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David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.