First it was the Facebook (NYSE: FB) IPO debacle. And now the poor showing by Candy Crush Saga parent King Digital Entertainment (NASDAQ: KING). After such flops, investors may well be a bit fearful of investing in upcoming IPOs.
However, that might be a mistake because we just came off the best year for IPOs since 2000. In 2013, the average IPO saw a 17% jump in its stock price on the first day.
Over 220 companies went public in 2013. And the average return for IPOs last year was over 35%. The odds of making money on newly issue stocks last year were quite favorable: three quarters of the IPOs finished the year in the green.
Despite a poor showing from King Digital Entertainment, this year is looking to be another stellar year for IPOs.
Let’s examine the 10 hottest upcoming IPOs for the rest of 2014. These stocks haven’t yet gone public, but they’re expected to start trading later this year:
It’s no surprise that Alibaba is at the top of the list. Dubbed the Amazon.com (NASDAQ: AMZN) of China, this Chinese ecommerce company is generating annual revenues that are nearly twice that of Amazon.
Current estimates value Alibaba at roughly $200 billion. When Alibaba goes public, the company is expected to raise more money than the Facebook IPO at $16 billion. Facebook’s IPO was the third largest public offering in U.S. history.
That’s not the only reason that Alibaba is so popular. Yahoo (NASDAQ: YHOO) owns 24% of Alibaba and its IPO could unlock cash for Yahoo shareholders. Meanwhile, Softbank (OTC: SFTBY) actually owns 37% of Alibaba. The Japanese telecom is anxious to put its proceeds to work as well, and could use the cash from the IPO to acquire Vodafone Group (NASDAQ: VOD).
Box has already filed for a $250 million upcoming IPO, set for later this year. This comes as the cloud is one of the hottest spaces to invest in. The rapid growth of this industry has attracted the likes of Google (NASDAQ: GOOG) and Microsoft (NASAQ: MSFT). Google offers Google Drive and Microsoft has OneDrive.
But the one thing separating Box from the competitors is its robust privacy and sharing features. This makes its service optimal for businesses. You can store information via Box, but also share files with co-workers and leave comments.
No conversation involving Box is complete without mentioning its top competitor, Dropbox. Like Box, Dropbox is a cloud computing company. The main difference between the two companies is that Dropbox is focused on the consumer market.
Apple tried to buy Dropbox back in 2009 for a bit less than $1 billion. Based on its latest round of venture capital financing, Dropbox is valued at around $10 billion.
Square is one of the hottest names in mobile payments. The company’s payment device plugs into a iPhone, Android, or iPad. It easily allows merchants to swipe credit cards and process payments on the go.
But earlier this year they decided to postpone their IPO efforts “indefinitely.” That means that Square might not go public in 2014. In the world of tech, we know that the company could change course again and file for an IPO.
For that reason, no “hot” IPO list is complete without Square. That’s because mobile payment spending in the U.S. is expected to jump from under $13 billion in 2012 to over $90 billion in 2017.
Everyone wants a piece of the mobile payments industry. Google already has Wallet, and eBay’s (NASDAQ: EBAY) PayPal is another front runner. The massive market opportunity has also tempted Apple to get involved. Apple has nearly 600 million iTunes users, including their payment info. But it remains to be seen if Apple decides to make a move in the space. For the time being, Square continues to innovate and introduce new products to stay ahead of the trend.
Spotify has proven to be a formidable competitor to Pandora (NYSE: P). Much like the mobile payments space, the music listening industry is heating up. A couple of the newest services include Songza and the Beats Music. But what might be the scariest news is that Apple could be looking to make a move into music.
Apple has iTunes Radio, but there’s speculation that it could be considering an iTunes app for Android phones. As well, Apple could eventually offer a streaming service that lets users listen to music on-demand, just like Spotify.
On the positive side, Spotify already has a proven ability to generate recurring revenue. While Pandora gets over 85% of revenues from advertising, Spotify gets over 85% from subscription fees.
Toward the end of 2013, Spotify raised capital at a $4 billion valuation, which isn’t far behind Pandora’s $5.5 billion market cap. This despite the fact that Pandora has been a public company since mid-2011.
Airbnb has been one of the more controversial names on the list, given its fight with the hotel industry.
One of its peers, HomeAway (NASDAQ: AWAY), is actually down between 5% since its 2011 IPO. However, Airbnb is a bit different. It allows users to rent out spaces, such as homes and apartments for any occasion. That’s different than HomeAway, which is more of a vacation rental company.
In Airbnb’s latest round of funding, the company was valued at an impressive $10 billion. It’s now spending more on lobbying and PR to help sort out any hotel tax issues in an effort to prepare for an IPO. It has even gone as far as offering to force hosts to pay the lodging tax that applies to hotels.
While TrueCar generates revenues from car sales, it’s still very much a tech company. It’s looking to change the way we purchase cars. Shopping for a new car has always been a hassle. And consumers are constantly looking for an easier way to shop.
CarMax (NYSE: KMX) first brought convenient and hassle free shopping to the car industry. Thanks to strong financial performance, CarMax stock is up over 250% over the last five years.
TrueCar’s ecommerce site allows shoppers to browse pricing details from some 6,000 dealerships to ensure they are receiving the best deal. A 2014 IPO for TrueCar could be great timing. The demand for autos continues to show strength. During 2013, annual auto sales for the U.S. automakers returned to levels not seen since 2007. And Ford (NYSE: F), General Motors (NYSE: GM) and Chrysler all posted year-over-year increases in auto sales for the month of March.
8. Virgin America
Sir Richard Branson’ Virgin America is considered one of the best airlines around when it comes to in-flight experience. Having its two main hubs on the West Coast (Los Angeles and San Francisco), Virgin America focuses on trans-continental routes. A niche that should make it valuable to airline investors.
And over the last couple of years, we’ve seen a rightsizing of capacity in the airline industry. That means that the issue of empty seats and un-filled planes have been on the decline. In part, thanks to the various mergers of many top airline companies. It looks to be a perfect time for Virgin America to come to market.
9. J. Crew
An IPO is nothing new for J. Crew. This will be its second go around with the IPO process. J. Crew initially came public in 2003, before being taken private by a group of private equity investors in 2011. J. Crew has already been talking with investment banks about setting an IPO for later this year.
So, this isn’t your typical IPO. J. Crew already has a well-established brand that includes over 100 factory outlets and 300 retail locations.
If the success of other high-end fashion retailer, Michael Kors (NASDAQ: KORS), is any indication, then J. Crew could be rewarded nicely by going public. Shares of Michael Kors are already up an amazing 250% since its IPO at the end of 2011.
It’s been nearly a decade since GoDaddy first tried to enter the public markets. That attempt failed. But this time around, it’s the largest domain name registrar in the U.S., managing over 50 million domains.
With the rapid rise in the number of companies looking to gain an online presence, GoDaddy could see similar success as one of its top competitors, Endurance International Group (NASDAQ:EIGI). Endurance completed its IPO just under six months ago and is already up 15%.
Although there are many upcoming IPOs to get excited about, there are a few companies that likely won’t be going public this year.
I’d be surprised to see the likes of Living Social, Rovio, or Evernote complete their IPOs in 2014. With Box and Dropbox looking to go public in 2014, Evernote will likely delay coming public until 2015.
Rovio – the maker of Angry Birds – likely saw any hopes of an IPO fade after the lackluster debut for King Digital Entertainment.
And Living Social has been through three CEOs in two years, which only further highlights issues in the daily deals industry. Top competitor, Groupon (NASDAQ:GRPN), is down over 70% since its 2011 IPO.
On the other hand, there are a number of other interesting companies that could IPO in 2014. The majority being tech companies.
Tech stocks have been soaring, with the Nasdaq up 27% over the last year. Today the average tech IPO from 2012 is up an astonishing 170% from its offering price.
The hope of big profits will always attract investors to IPOs. Those who can get in on the IPO offering often stand to make a healthy profit. But for the average investor who can’t get IPO shares, it’s often best to be cautious.
IPOs aren’t any different than any other stock. And investors should closely examine the financials and business health before jumping into the next red hot IPO.
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