The First Data IPO price was officially announced this morning, and the company will be holding the largest IPO of 2015.
According to Renaissance Capital, a manager of IPO-focused ETFs, the company will sell 160 million shares for $18 to $20 each. At the midpoint of the First Data IPO price range, the deal will raise $3.04 billion and have a market cap of $16 billion.
After it prices during the week of Oct. 12, the First Data IPO will be the largest deal of 2015. It will be only the third billion-dollar IPO this year after Tallgrass Energy GP LP's (NYSE: TEGP) $1.2 billion deal and Columbia Pipeline Partners LP's (NYSE: CPPL) $1.1 billion debut.
First Data Corp. (NYSE: FDC) provides e-commerce and payment processing to banks and financial institutions. The electronic payment company processes trillions of dollars in credit and debit card transactions for large and small businesses.
The company is highly dependent on consumer spending, which has skyrocketed this year. Back in May, consumer spending in the United States rose 0.9%, the largest increase in nearly six years. August saw an increase of 0.4% despite volatility in global markets later in the month.
But First Data's performance relies on more than consumer spending. The IPO filing stated the firm's profitability hinges on the unpredictable and constantly changing e-commerce market.
"The market for our electronic commerce services is evolving and may not continue to develop or grow rapidly enough for us to maintain and increase our profitability," the filing said. "If consumers or businesses do not continue to adopt our services, it could have a material adverse effect on our business."
First Data just started turning a profit. The firm reported $12 million in earnings for the fourth quarter of 2014, the first profitable quarter since 2007.
In the first half of 2015, First Data posted $30 million in losses on $5.6 billion in revenue. That compares to a loss of $142 million on revenue of $5.5 billion during the year-ago period. The losses come from the company paying off its $21 billion in debt.
Now that we know the First Data IPO price, investors are wondering if they should invest in FDC stock when it hits the market...
Should You Invest in the First Data IPO?
We recommend waiting until after the First Data IPO to consider purchasing shares of the company. That's because retail investors like you and me are at a disadvantage during the IPO process.
You see, IPOs only benefit institutional investors like hedge fund managers and investment banks willing to purchase large quantities of a stock before its debut. These Wall Street "VIPs" give the companies massive gains on their first day of trading. That can lead retail investors to think they can capture most of these profits if they jump in right away.
Frequently, new investors will rush into a new stock following an IPO when the share price has already surged during initial trading. At that point, you're buying in at an inflated price and missing out on the gains the wealthy Wall Street investors already snagged.
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When the price falls after the initial frenzy, retail investors who aren't in the "VIP club" will see huge losses.
But according to Money Morning Chief Investment Strategist Keith Fitz-Gerald, there are still profitable ways to play a hot new issue like First Data.
Here are the three best ways to play the exciting IPO market...
Alex McGuire is an associate editor for Money Morning who writes about upcoming IPOs. Follow him on Twitter for the biggest IPO news.