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Once a bureaucrat in the State Department, Siu-Yee Ng has formed a network of contacts worldwide. Originally from Hong Kong, Siu-Yee has been the IPO research analyst for Taipan for over two years. In 1999, she launched IPO Trader, her own investment alert service.
She follows each filing, and looks at each company's potential for a solid public debut and for a long term winner. She followed eBay, Inc. in its public debut with first day gains of over 197%. webmethods, inc. (WEBM-NASDAQ), another pick, proved to be another big winner gaining 506% on the first day.
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Outlook for IPOs in 2001
by Siu-Yee Ng
It came as no surprise that 2000 failed to repeat the mania of 1999. The IPO market never repeats itself. And there's no doubt 1999 was the best year for IPOs.
To predict what will happen in 2001, we must first examine the trends in the new issues market. In 1999, two records were set — dollar volume and aftermarket performance. A total of US$100.6 billion was raised, breaking the previous record of US$57.86 billion set in 1993. Following the 1993 record-breaking year, Wall Street raised only US$33.84 billion the next year, a failing to match or beat 1993's IPO performance.
The average 1999 year-end gain in the aftermarket was 199.5% per issue. The previous record was set in 1995 when the average gain was 39.4%. In 1996, IPOs registered an average gain of 16.8% each, failing to springboard off 1995's stellar performance. Once again, we see that the IPO market doesn't make back-to-back records.
Also, consider the overall 1999 market performance. Keep in mind that the IPO market lives and dies by the NASDAQ Composite Index. Last year, the red-hot Composite ran up 85.6% to close at 4,069 — up from 2,192 on December 31, 1998 — thereby setting a record single-year gain. And this benefited the new issues market. The NASDAQ continued to soar in the first quarter of 2000.
127 IPOs debuted in the first quarter of 2000, raising US$28.3 billion. The average deal raised US$220 million, much more than the 59 deals netting US$10.5 billion during the first quarter of 1999. Most IPOs in the first quarter of 2000 were priced above the expected range. But with the market correction in late March and continuing into April, there were doubts about whether the new issues market would be able to continue grabbing huge premiums in upcoming debuts.
Whether they admit it or not, everyone knew that the lofty valuations of the Internet companies could not last forever. With so many companies competing in so many specialized niches, it was obvious that winners and losers would quickly emerge after the dust settled.
By the end of the first quarter of 2000, dot-coms were no longer Wall Street's darlings. An Internet strategy was no longer a business plan in and of itself. Instead, the execution of a business plan in addition to profits became the hallmark of companies with solid valuations.
Even before the market selloff in March, new issues were experiencing a slowdown. The IPO market runs in an endless cycle. With the success of IPO debuts at the end of 1999, underwriters brought many young companies public in the first quarter 2000. This not only caused an oversupply problem, but the overall quality of the companies was also in question. The inevitable result was that the new issues market went into the next cycle of decline.
The market was hot in the first quarter of 2000, and it seemed as though any new company could make it. Overall, this depressed returns for new issues, adding to the market turmoil by the end of the quarter.
This is an endless cycle, and investors have seen such corrections before. During the Asian crisis in October 1998, the IPO front was quiet, with few high-flying debuts. Remember eBay, Inc. (EBAY:NASDAQ)? This online auction company debuted in September 1998, and by October was trading as low as US$25.00. The market recovered, and now eBay is a household name. eBay reached a high of US$255, and that's after a 3-for-1 stock split.
Let's take a look at last year's April-May selloff. By the end of August 1999, analysts were forecasting the end of the IPO market. But it quickly recovered. F5 Networks (FFIV:NASDAQ) debuted during the selloff in June 1999 and traded as low as US$10.25. Then it rallied with the market, trading as high as US$160 by November. Digital Island (ISLD:NASDAQ) debuted in June and traded as low as US$9.15. By December 1999, it had rallied to US$160.
My point is that even with a market correction, investors can still make money. Look at the weakness in the IPO market as a buying opportunity. Investors have the opportunity to buy leading companies at reasonable prices. It's important to stick with the hot sectors and pay attention to the company's fundamentals.
Read on...
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