For the past several years, the IPO calendar has dried up a few days before the last Monday in May – Memorial Day – and then it has come back to life by mid-June. This year, it looks like the calendar is following that cycle. But there are some strong signals that bode well for IPOs for the immediate future.
The factors that drive IPOs are the stock market and the IPO pipeline. A strong stock market provides the lifeblood of IPOs, and the lifeblood of the IPO calendar is the IPO pipeline. Both are showing favorable signs.
NASDAQ Back in the Black
The first sign to watch is the stock market, as measured by the NASDAQ Composite Index, the barometer of the IPO market.
The NASDAQ has been on a roller-coaster ride this year. It closed at its 2014 high of 4,357.97 on March 5, UP 4.34 percent from 4,176.59 on Dec. 31, 2013. The NASDAQ took a sharp spill to close at this year’s low on April 11 at 3,999.73, DOWN 8.2 percent from its 2014 closing high on March 5.(Note: That was close to a correction. A 10 percent pullback from a recent high is considered a correction.) Since then, the NASDAQ worked its way back to close on Friday, May 23, at 4,185.81. (Note: This was the first time in the last six weeks that the NASDAQ closed with a gain for the year.)
The close tie between the NADSAQ and the IPO market has been highlighted in previous installments of “The IPO Buzz” column. The bottom line: IPOs need a strong stock market to flourish.
Pumping Up the IPO Pipeline
Last week was a busy one at the U.S. Securities and Exchange Commission’s filing window. Fourteen companies filed plans to go public. They expect to raise almost $1.2 billion. This heavy traffic at the SEC filing window increased the visible IPO pipeline to more than 130 companies. These companies expect to raise about $19 billion. That is a dramatic increase from the beginning of the year.
On Dec. 31, 2013, there were 81 IPOs in the pipeline. They expected to raise $11.7 billion.
Through the Memorial Day holiday, 111 IPOs have been priced this year. These figures exclude unit offerings, closed-end investment companies and foreign companies offering American Depositary Shares in the U.S. capital markets, which represent ordinary shares already trading on their national stock exchanges. The 111 IPOs of 2014 have raised $22.8 billion.
China and the Major Leagues
And what’s an IPO pipeline without a headliner? Here’s one:
Alibaba Group Holdings, the giant Chinese online commerce company, filed on May 5 for an IPO to raise $1 billion. But the rumor mill is running full time, and people are saying it will be more. No pricing date had been set, at press time, but there are people out there who will tell you when that will happen. For the rest of us, we’ll have to wait until the company files with the SEC the number of shares it expects to offer and at what price range.
JD.com, based in Beijing, is the largest online direct sales company in China. JD.com priced its IPO of 93.7 million shares at $19 each on Wednesday evening. It raised $1.78 billion. The IPO opened at $21.70 Thursday morning and closed Friday at $20.10, UP 5.79 percent from its initial offering price.
There are differences between the two.
Alibaba reported net income of $3.53 billion on revenues of $7.88 billion for the 12 months ended March 31, 2014.
JD.com reported a net loss of $8 million on revenues of $11.5 billion for the year ended Dec. 31, 2013, its most recently reported financial figures.
One trader told IPOScoop.com: “To compare Alibaba to JD.com is like comparing the New York Yankees to the Staten Island Yankees.”
Looking into the following week, the calendar has nothing. But recent IPO history shows we can expect thing to start picking up.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.