The IPO market -  Recent IPOs, Their
Performance and Prospects.            
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The IPO market can be a unique source of interest
for the seasoned investor. It is an exciting area on
the edge of the equity market. It can be a rewarding
and challenging part of the market to examine,
although undoubtedly a more risky play than other
In this article I’ll take a look at the issuances of
some recent companies, how they have performed, and
delve into their overall prospects and keys to success. In
the next article I’ll look at what to expect with some
upcoming issuances.

The IPO market, in terms of transaction activity (volume)
and total dollar level, follows the general movement of the
stock market. That is, if the stock market is rising in value,
the IPO market activity tends to pick up. It makes sense as
rising stock markets generally mean more money flowing
into the equity market. That means more money and better
terms for all companies seeking capital, including IPOs.

Last year’s market was up in the first half of the year and
down in the second. Most analysts blame the second half
on the European debt crisis and other financial
uncertainty. That’s why you saw some good deals made in
the first half and much less in the second. A number of
promising deals that were waiting to be made, like Kayak
for instance, were postponed to this year, if they are made
at al. In any case, the stock market has been on a roll in
the past three months, close to its post 2008 crash high. If
this holds up this may be a good year for IPOs.

One IPO that was recently completed was Yelp, an online
consumer review site.  Currently, its reviews are largely of
restaurants, bars, shopping and beauty venues although
virtually all kinds of establishments one could patronize are
there. It went public on March 2, 2012, issuing 7.1 million
shares worth a total of $106 million. These shares
represent only a small portion of the total ownership,
however. The pricing of these shares extrapolates to a
total company valuation of $1.4 billion dollars.

The initial opening price was $15, but the stock price
quickly shot up to $24.6 by the end of the first day.  Since
then it backtracked to a low near $20 earlier this month,
but has rebounded nicely to $23.22 as of this week. So
there was significant exuberance for this stock initially that
has since been tempered. Given this, the stock price is still
55% over the offering price currently, while the S&P 500 is
only up 3% in that period. Generally being so far up over
the initial stock price certainly sends a positive signal
about the future prospects of the company*.  

2011 revenue for Yelp was $83.3 million, up 75% over its
prior year revenue of $47.7 million. It generated a net loss
of –$16.7 million in 2011, worse than the loss of
-$9.6 million in 2010. It has never generated a profit in its
history (est. Oct. 2004). So the valuation of this company
was certainly pricey, as it shows a multiple of almost 11
times 2011 revenue upon issuance. It has since been bid
up to almost 17 times revenue. Clearly the market
anticipates tremendous growth for this company, both in
an absolute sense and relative to some of its competition.
Traffic to the site was 66 million unique monthly visitors as
of February 2011.                 

In the next article we’ll go into Yelp’s overall prospects and
keys to success.         


*However, most people, and even the company’s
management themselves, sometimes do not realize
that for the stock price to be so far up so soon after
the initial offering indicates that the company left
capital on the table. That is, the company could have
had the benefit of  that additional price per share in
that immediate period, at no extra cost. For instance,
if Yelp’s initial target price was $23 or $24 instead of
$15, with the same number of shares made available,
it would have had an additional $33.8 million dollars
available to it on March 2nd. That's one of the dirty
little secrets of Wall Street -  that the initial bump in
IPO stocks is garnered by the bankers and the initial
big investors who are rewarded with the right to buy
the stock the first day. They do this by intentionally
underpricing the IPO. But that’s an article for another

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