IPO fever is back.
Five years after the financial crisis dampened enthusiasm for initial public offerings, investors are again eager to buy shares when companies start trading. Twitter is the star this week, but the number of offerings shows that it’s not just social-media darlings that are seeking and attracting investors.
There have been 190 offerings this year, and momentum has built as market indexes have set new highs. October’s 33 offerings made it the busiest month since November 2007, according to data provider Dealogic. And a dozen expected offerings this week tie it for the busiest week of the year.
“It’s a wild week in IPO land,” said Scott Sweet, who runs IPOBoutique, which researches IPOs.
A more active IPO market signals investor confidence in the economy. And the cash that companies raise in an IPO can help them invest and hire more, potentially supporting economic growth.
Twitter is the big one. On Monday the online short-messaging service raised the expected price for its shares to $23 to $25, up from $17 to $20 each. The new price is enough to raise more than $2 billion. It’s expected to trade on the New York Stock Exchange under the symbol “TWTR.”
Twitter appears cautious about how much it’s seeking from investors after Facebook’s IPO last year. On its first day of trading, Facebook’s hotly anticipated stock finished just 23 cents higher than its $38 IPO price, and it lost more than half of its value in its first four months. Although the shares are now 28 per cent above their IPO price, many investors believed Facebook stock was priced too high initially. Twitter’s price range was lower than many analysts expected. Many market watchers believe Twitter is trying to avoid the perception that its shares are overpriced.
“They’re obviously learning from the very serious mistakes Facebook made,” Sweet said.
It’s not unusual for a bull market in stocks to bring out the companies that want to raise money from the public. The Standard & Poor’s 500 index closed at record highs seven times last month. It’s up 23 per cent this year.
The recent stock market highs make it a ripe time for IPOs but also show that “there is plenty of speculation in the market,” Sweet said. Last week’s 10 IPOs included organization retailer The Container Store Group Inc., which doubled on its first day of trading, and Chinese travel website Qunar Cayman Islands Ltd., which nearly doubled in its debut.
This week’s IPOs include tech companies such as Israeli web design firm Wix.com Ltd., seeking $119 million according to Dealogic, and network security company Barracuda Networks Inc., seeking $81 million.
Other IPOs this week include energy company Midcoast Energy Partners LP, expected to raise $370 million; finance company JGWPT Holdings LLC, expected to raise $250 million, and biotech company GlycoMimetics Inc., expected to raise $60 million.
May of the companies debuting, including Twitter, aren’t yet profitable, leading some to question if they are ready for a public offering at all.
And if broader markets decline, the reception for IPOs can turn chilly in a hurry. If stocks declined for, say, three to five days, “that would affect the pricing, that would affect the interest in the IPO market,” said Francis Gaskins, president and editor of IPOdesktop, which advises investors on offerings.