After Facebook Inc. (Nasdaq: FB) went public last year with disastrous results, the IPO calendar emptied for more than a month.
But thanks to a string of successes toward the end of 2012, the IPO market is heating up for 2013.
In fact, companies that went public after Facebook's May 18 IPO were up an average 31% through mid-December from their IPO price, with the S&P 500 only up 11% in that time.
As we start 2013, the overall pessimism that engulfed the IPO market since Facebook went public has disappeared.
"To me, it feels like a meaningful shift in the market," said Tom Murphy, a partner and head of the securities-capital and markets group at law firm McDermott Will & Emery. "With those companies [that had great IPOs], all in very different industries, getting out at the top of their ranges, and above, is a really strong signal."
The IPO Rebound
The IPO market started rebounding in October, specifically during the week of Oct. 8- Oct. 12, when nine companies went public, the most since the end of March.
"There was a big hiccup with Facebook, but in general, new issues in the market are doing well," Jonathan Crane, chairman of KeyBanc Capital Markets' equity-underwriting committee told The Wall Street Journal. "People are gravitating toward anything with growth, and in that respect, I think things have returned to normal."
The best performing of those October debuts was Workday Inc. (NYSE: WDAY), a provider of cloud-based applications used to organize human resources, accounting and other employee-related activities.
Workday went public Oct. 12 and opened at $48.05, 72% higher than its $28 offer price. It was the largest venture-backed IPO since Facebook went public in May, raising $637 million in cash. WDAY stock currently trades at $50.
Workday's IPO is part of a successful trend in cloud-based companies going public.
"For now, the megatrends in the IPO market include cloud-based computing – which includes companies such as Workday, Demandware Inc. (NYSE: DWRE), Splunk, ServiceNow Inc. (NYSE: NOW), Guidewire Software Inc. (NYSE: GWRE) and Palo Alto Networks – and high-end branded goods such as Michael Kors Holding Ltd. (NYSE: KORS) and Prada that appeal to consumers in emerging markets," says Sam Hamadeh, chief executive of Privco, a financial dataprovider.
Who to Put on Your 2013 IPO Calendar
Based on the performance of the above companies, there are plenty of reasons to be excited for next year's IPOs.
"The positive returns helped revive global IPO activity at the end of 2012 and should support stronger issuance in 2013 from the large $200 billion global IPO pipeline," according to Renaissance Capital's year-end IPO report.
Here are some IPOs in 2013 to keep an eye out for:
- Square- Starbucks in August partnered with Square in a $25 million deal that lets the mobile payments company process all of the coffee giant's debit and credit transactions. Square should continue gaining popularity as the "mobile wallet" industry takes off. Besides being a major player in this up and coming industry, Square is often thought of as a takeover target.
- Tableau Software – This Seattle, WA-based company could be the next big cloud IPO. Tableau is a data-visualization company which devises programs that turn complex databases into graphics and maps. It has been profitable for five years and in 2011 was ranked by Gartner and IDC as the world's fastest-growing business-intelligence company. Over 10,000 companies including Apple Inc. (Nasdaq: AAPL) and Coca-Cola Co. (NYSE: KO) use Tableau products, and after the success Workday and Splunk had many are expecting Tableau to have similar results.
- Silver Spring Networks- Located in Silicon Valley, Silver Spring Networks sells cloud-based, power grid management hardware and software to utility companies. In 2011 its revenue grew 238% and it almost went public branded as a green energy company, but put the deal on the shelf after the Solyndra scandal and has since repositioned itself as a cloud company involved in "cleantech." But, with the success SolarCity Corp (Nasdaq: SCTY) had in its 2012 IPO, things are looking up for green energy. Add that to the success enterprise software, or cloud companies have had, and Silver Spring's IPO looks very promising.
- Glam Media- Glam Media is a vertical-media company with entertainment and lifestyle Websites and blogs mostly geared toward a female demographic. The company generates revenue through ads and has been profitable since 2010. Glam continues to grow through acquisitions and currently has 356 million unique visitors per month to its site. In June of 2012 Glam was rated the #1 digital lifestyle Website in the world by comScore.
- Rapid7 & WhiteHat Security- One or both of these companies could be the next huge cybersecurity play, as both are thought to go public in 2013. Rapid 7 saw its revenue grow by 75% in the third quarter of 2012 and continues to expand its product portfolio. WhiteHat was founded by a former Yahoo! Inc. (Nasdaq: YHOO) information security chief, and dozens of Fortune 500 companies rely on WhiteHat for protection. As the world becomes more complex, uncertain, and digital, expect cybersecurity companies to grow in importance and value. Plus, both of these are prime takeover targets by larger security and defense firms.
- Dave & Buster's- In October it pulled its IPO off the shelf, but keep an eye out for an offering some time in 2013. The company provides the best arcade and gaming experience for adults and was hoping to join other restaurant companies such as Bloomin' Brands Inc. (Nasdaq: BLMN) and Chuy's Holdings Inc. (Nasdaq: CHUY) that have had successful IPOs this past year.
- Twitter- This would be 2013's biggest tech IPO, and after Facebook's debacle, Twitter's IPO may really define social media investments. Recent announcements though indicate a Twitter IPO may have to wait until 2014. The company recently said it expects to generate up to $1 billion in revenue by 2014, and there's always speculation that it could be acquired by Google (Nasdaq: GOOG) or another company. Its revenue model is still a little shaky but Twitter has proven to be able to monetize mobile users much quicker and effectively than Facebook.
Upcoming IPOs to Avoid
All three of these companies present huge risks for investors and should be avoided.
- Pinterest & Tumblr- Both of these companies face issues similar to Facebook's in terms of generating profits and revenue from their user base, as well as monetizing mobile users. Pinterest has not proven its business strategy is legitimate and has even admitted it does not know how to turn its user base into profits. While just as popular as Pinterest and Facebook, Tumblr is an even riskier IPO to consider, and generates minimal revenue. Even though both sites are incredibly popular, their fate as public companies could easily follow Facebook's path.
- LivingSocial– The vouchers Website might go public in 2013, but its business structure is too similar to Groupon Inc.'s (Nasdaq: GRPN), which has done awful since its IPO. After touching $30 on its IPO day, GRPN immediately began to sell off and currently trades around $5. If LivingSocial has an IPO make sure to avoid it.
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