2013 was a banner year for tech IPOs.
Want proof? Two key facts tell the story…
- Renaissance Capital says that of the 256 total IPOs in 2013, 99 of them were tech- and biotech-related companies.
- Combined, the two sectors raised $16.5 billion in funding – around one-third of the entire IPO total from 2013.
Impressive. But just after Twitter’s (TWTR) high-profile launch, I made this bold declaration:
“We’ll see even more private tech companies go public in 2014, with even higher valuations.”
I was right.
The first quarter saw 98 new companies hit Wall Street, compared to 36 in the first quarter of 2013.
And through May, 169 IPOs have launched… most of which are tech and biotech stocks.
If you’re counting at home, it means we’re just 87 IPOs shy of matching the entire 2013 figure. A feat we could accomplish in just a few months.
Party time, right?
Well, not so fast…
Fool Me Twice, Shame on Me…
Remember the last time we saw an IPO market this strong? The market does…
It was 1999 and 2007 – and we all know what happened afterwards. Stocks (mostly tech ones) got inflated to bubblicious proportions – and then tanked.
This time around, investors are warier and more skeptical.
Amid the current strong IPO market, boom-to-bust memories are still fresh, making investors gun-shy about any bloated valuations.
It’s a big reason why tech stocks have sunk recently, forcing several companies like Box, MobileIron and Arista Networks to delay their IPOs until the market improves. Others have delayed and revised their filings. For example, Radius Health, which treats bone loss from osteoporosis, recently slashed its market valuation by 43%.
However, far from being a cause for concern, this shows that the market has grown up and is more mature these days.
Previous tech busts have essentially trained investors like an electric fence trains a dog.
Having fearlessly bolted after anything exciting, only to get a few unpleasant zaps, investors have learned a painful lesson. They now think twice before recklessly chasing any tech stock.
This caution didn’t exist in 1999.
For example, in my article last month about the three reasons why we’re not in a tech bubble, I noted that in 1999, a whopping 480 companies went public. Of that total, 308 were internet and tech-related firms. This year, there’s a better chance of seeing snow in Hawaii than seeing anything remotely close to that 308 number.
It’s precisely why, despite today’s tech slowdown, the climate is actually healthier, rather than toxic.
The truth is, the IPO market is still robust – and today’s more-discerning climate means only the strongest IPOs will prevail. Like these…
Three IPOs Poised for Wall Street Success
Of the companies that’ll hit Wall Street during the second half of 2014, there are a few standout candidates.
IPO #1: GoPro
Trend: Wearable Technology
Launch Date: Second Half of 2014
Put simply, this is the “sexiest IPO of 2014.” If you’re a regular reader, you’ll know why, too. I’ve profiled GoPro on two occasions – once back in February and again a couple of weeks ago, after the company officially filed its IPO with the SEC.
In it, the hugely popular maker of wearable action cameras revealed more details behind the company’s success. Namely, revenue and net income that’s soaring year after year.
With outstanding and incredibly durable products, GoPro has built up an extremely loyal fanbase and dominates its market.
It has a pretty compelling growth strategy from here, too. If you missed it, take a look.
IPO #2: Dropbox
Trend: Cloud Storage
Launch Date: Second Half of 2014
As I mentioned earlier, cloud storage firm, Box, has delayed its IPO, due to unfavorable conditions in the tech market.
Its direct competitor, Dropbox, is a better bet anyway. The company dominates market share in one of today’s fastest-growing tech industries – cloud computing. The market is expected to hit $241 billion by 2020.
Dropbox is a cloud storage company whose platform allows users to store, share, access and edit files in real time from any device. Its customers include individuals and global corporations, and its subscriber base is soaring. The company announced last week that its users have grown from 200 million in November 2013 to 300 million today.
Given the shift of consumers and businesses alike towards cloud-based storage, that number should only grow from here, too.
In addition, the cloud technology IPO market is coming off a strong 2013, and Dropbox’s launch this year is expected to continue the trend. As a sign of the company’s strength, it’s turned down takeover bids from both Apple (AAPL) and Google (GOOG).
IPO #3: Uber
Trend: On-Demand Service
Launch Date: Second Half of 2014
When it comes to disruptive tech companies, San Francisco’s Uber certainly qualifies.
Is the on-demand car service merely a glorified taxi company that’s dodging conventional taxicab licensing regulations? Or is it simply harnessing modern technology to its advantage?
Either way, it’s shaking up the marketplace.
Authorities in several cities have made quite a fuss over Uber, as they investigate its business model and regular cabbies cry about losing business to Uber. Some cities – like Miami, Houston and Austin – have stopped Uber from operating altogether.
Nevertheless, it’s now present in around 70 cities worldwide, with 400 employees. And revenue growth is outstanding, growing by almost 20% every month over the past year, according to Wired.
The premise is simple and taps into today’s instant gratification, on-demand culture: Using the Uber smartphone app, customers sign in and tie a credit card to their account. When you want a ride, you simply tell Uber, and the nearest driver picks you up. The company promises a wait no longer than five minutes. The average is just two minutes.
As for needing cash… forget it. The fare is automatically deducted from your account – including tip. Passengers can rate their experience immediately afterwards.
Unofficial reports say that Uber notched $1 billion in revenue in 2013.
As for its IPO, news broke this week that Fidelity is fighting off competition by offering a $17-billion round of financing. That’s $7 billion more than Uber originally sought and, if completed, it would make Uber the highest-valued startup of 2014.
This follows a huge influx of funding last summer, as Uber scooped up $258 million. Google was a prominent supporter and the funding valued Uber at around $3.5 billion. Uber is using that money to branch out and lobby city regulators to approve its service. Amazon (AMZN) chief, Jeff Bezos, is also a big backer.
Ultimately, with a strong entrepreneurial track record and a feisty, no-quit attitude, you can bet that Uber Founder, Travis Kalanick, will do whatever it takes to make Uber’s IPO a success.
Bottom line: The IPO market is unpredictable and volatile at the best of times. But those with proven business models – and revenue to prove it – will endure in the long term.
Your eyes in the Pipeline,