Login

Log In

Enter your username and password below

The Smartest Way to Play Next Year’s Two Hottest IPOs

What a year it’s been for technology IPOs…

According to Renaissance Capital, the U.S. market saw 43 tech companies go public this year, generating $7.6 billion in proceeds.

And they’ve performed strongly, too. The average tech IPO in 2013 has jumped 39% during its first month of trading.

While the mainstream media likes to blitz major tech IPOs like Twitter (TWTR), there’s a laundry list of lesser-known tech names hitting the market every quarter.

But with less focus on these companies, how do you separate the sizzlers from the stinkers?

Well, you can start by reading the rest of this article! That’s because I’ve identified two companies that I believe will be the cream of the IPO crop in 2014. And the smartest way to play them before they even hit the market…

2014 Tech IPO #1: Dropbox

There’s no doubt that cloud technology is one of the fastest-growing areas in the tech world.

It’s also been a top performer in many tech IPOs this year. In fact, as an analyst at PricewaterhouseCoopers notes, “Companies with business models steeped in cloud-based computing accounted for 15 of the 40 tech-related IPOs in the 12 months ending on September 30. I expect a continuation of this trend going into the next year.”

Enter, Dropbox.

Dropbox is an extremely powerful platform that’s been disrupting the file storage space for years. It offers users a best-in-class solution for sharing, editing, storing, and accessing files from any device at any time.

As more consumers and enterprises alike continue to shift towards the cloud, Dropbox is strongly positioned to capture this momentum in a global cloud-computing market that’s expected to reach $241 billion by 2020.

The Dropbox model is simple…

The company employs a “freemium” strategy, whereby users sign up for free and begin to rely on Dropbox. When they quickly reach their 2GB free data storage limit, Dropbox offers various pay-for-storage levels.

It’s proved to be an extremely effective and lucrative model, too. The number of Dropbox users has ballooned from 19 million in 2011 to 50 million today. That’s quite a feat, given the competition in the field from the likes of Apple (AAPL) and Google (GOOG) – both of which have offered to buy Dropbox. And both bids were rebuffed.

2014 Tech IPO #2: Spotify

Ever since the days of old-school Walkmans and CD players, portable music has been a staple in millions of people’s everyday lives.

And of course, the area has exploded with the use of mobile devices like iPods and smartphones.

But with the growth of companies like Pandora (P), we’ve also seen a significant shift in consumer preferences – namely, from owning music to “renting” music.

This allows listeners to access their favorite songs from their tablet, smartphone, or computer – a trend that will continue to expand in the future.

Enter, Spotify.

It’s already reinvented the rental market so much, it’s actually disrupting market titans like iTunes.

Just like cloud technology, though, the online music space is packed with competition, too. But Spotify provides a different product than its rivals.

It offers listeners streaming access to more than 16 million songs via iOS and Android operating systems. And its software application allows users to instantly listen to specific tracks without a buffering delay. It also links to social media, allowing users to share tracks with their friends in real time.

Users can register for free, or pay a subscription that includes extra features and no ads.

Spotify’s popularity is exploding. It’s now available in 17 countries and boasts 24 million users.

Of that number, six million are paying customers, who are igniting Spotify’s revenue. As of July, the company’s annual revenue doubled to $577 million from a year earlier. And it’s raised enough capital to produce a $5.27-billion valuation.

Thanks to Spotify’s music industry contracts and expansive music library, it’s set to remain a market leader for the foreseeable future.

The question is… since Dropbox and Spotify are still private companies, how do you invest in these IPOs before they hit the mainstream market?

How to Trade a Private Firm

Before a company starts trading, its pre-market value is utter speculation. Yet this often-inflated valuation goes on the books.

So when a bloated IPO finally launches, that’s when you witness a massacre as the valuation adjusts. Facebook (FB) is an obvious example. After its pre-IPO horse-and-pony show, Facebook launched at $38 per share. It closed out the week at $26.81.

That’s why you can’t wait until a company hits the market. In fact, you shouldn’t even wait until the formal announcement!

You have to get in before the hype, to catch the run-up. Then take your money and run before the hype hits the fan!

So, where should you position your money?

For the two IPOs I mentioned above… Global Silicon Valley Capital (GSVC).

Launched in April 2011, GSVC gives investors the chance to own a piece of VC-backed private companies through one publicly traded security. A chance to participate in the growth of tomorrow’s stars, today.

The firm’s investment philosophy is based on identifying “game-changing” businesses with disruptive technologies and services.

Two such companies it identified were Facebook and Twitter.

When Facebook announced it was going public, GSVC shares surged from $13.49 to $20.45, then tanked when FB actually went live.

When Twitter announced it was going public, GSVC shares shot up 115% – from $7.67 to $16.48 – only to drop right after Twitter went live.

Take a look…

You see where I’m going here?

GSVC also has a stake in both Dropbox and Spotify – two IPOs set to launch next year, and guaranteed to be as hyped-up as Facebook and Twitter.

To be exact, GSVC has a combined 7.7% stake in the two companies – significant, given the reaction its share price had to the firm’s stakes in Facebook and Twitter…

So to play the IPO hype surrounding Dropbox and Spotify next year, buy GSVC shares now, as they’ve traded down from $16.90 in October to $10.30 today.

And when the hype kicks into high gear in 2014, you’ll see GSVC double again. When it does, either take your profits, or roll them into a downside position before the shares adjust.

Your eyes in the Pipeline,

Marty Biancuzzo

Marty Biancuzzo

, Technology Analyst

View More By Marty Biancuzzo