It’s All About Tech
With the IPO market improving and growth in the technology sector gaining momentum, I'm really excited about some of the IPOs that fall within the sector. So let's take a look at recent developments in this fast moving industry, and check out tech companies scheduled to go public this week.
One thing is abundantly clear as earnings season heats up - the future of the U.S., and even the global economy, is heavily dependent on growth in the technology sector.
That's a strong statement to be sure, but it's true. According to IPO research group Renaissance Capital, of the 66 IPOs so far this year 25 percent of them have been technology companies.
Year to date, tech leads all sectors with 18 IPOs, and $2.1 billion in total proceeds. The only sector to raise more cash is financial IPOs, which year-to-date have attracted $2.5 billion.
I've been bullish on small-cap technology companies, and own several in the Small Cap Investor PRO portfolio. They have been strong performers of late (click here to learn more about the tech stock that subscribers are up 80 percent on), and I think this trend will continue.
Investors just need to look to Intel Corporation's (Nasdaq: INTC) better than expected earnings report on Tuesday as a sign of tech's dominant growth. The world's top chipmaker reported a record net profit of $2.9 billion on $10.8 billion of revenue.
Key reports from other big players that could also confirm the sector's overall strength include Google's (Nasdaq: GOOG) earnings report today after the bell and Apple's (Nasdaq: AAPL) report on July 20th.
***With strong tech spending by businesses, the sector is ripe for new public offerings. Gregory K Ericksen, Global Vice Chair for Strategic Growth Markets at Ernst & Young states, "Issues in [the technology sector] are being oversubscribed between three to five times, illustrating the current market demand".
Rich Wong of Accel Partners, a Silicon Valley venture-capital firm, says "There's strong, durable, authentic momentum".
These companies are entering the market at an optimal time to raise capital. But that doesn't mean investing in them on the IPO date is a slam-dunk - we need to do our homework and return to the basics of investing research, as I outlined in yesterday's issue, Dos and Don'ts of IPO Investing.
Let's review one tech IPO that just opened today. I've got two more for you tomorrow, so look for tomorrow's issue in the early morning so you can watch their price action during the day.
Also, note that I'm not recommending any of these stocks right now - I just want you to put them on your radar and we'll make a potential investment decision after the IPO excitement dies down.
***The first tech company going public is Smart Technologies Inc - ticker symbol soon to be (Nasdaq: SMT). Headquartered in Alberta, Calgary, the company makes interactive technology products, such as its interactive whiteboard. These help student engagement in the classroom, and allow people to share ideas more effectively.
With a price range of $16 to $18 per share, the company plans to raise around $600 million in the offering. However, its current stockholders are selling 75 percent of the shares in the IPO, which means SMART will net only $135 million.
This should automatically raise a bit of a red flag, especially for those who read my article yesterday, Dos and Don'ts of IPO Investing. In this case, it's not the executives cashing out but private shareholders. The company won't have a windfall of cash to put to work.
However, with the money that will flow into SMART Technology, $59 million of it should go to pay off long-term debt - the rest toward expansion efforts. Of the estimated 41 million teaching spaces worldwide, only 7 percent have an interactive whiteboard, so clearly there is a big market out there. The company also expects a 19.5 percent compound annual growth rate in the worldwide interactive whiteboard market from 2009 to 2012, so the market is expanding as well. These are both good signs.
One of this firm's most popular products is the SMART interactive whiteboard, which has the simplicity of a whiteboard and the power of a computer. The way this product could changed the education world is quite similar to how Apple's iPad is revolutionizing how people view electronic content today. The company has already sold 1.6 million of these interactive whiteboards worldwide.
The company is also growing at a very fast pace. With the fiscal year ending on March 31, revenue has grown from $378.6 million in 2008 to $468 million in 2009 and reached $648 million in 2010. Calculating the average revenue growth rate over the last three years (31 percent), I project total revenue to be $849 million in 2011. With a history of reporting strong net revenue and a positive outlook on future growth, this is a new public company you should add to your watch list.
Check out Smart Technologies today, it's an interesting company and you'll learn a lot by following the stock's price action as it hits the market. We'll come back to two more tech IPO opportunities tomorrow morning, see you then.
