The 21st century IPO will be bigger and better, judging from the trends of 1999 and analysts' predictions. Technology issues will continue to blow traditional offerings out of the water as wireless and business-to-business companies lead the charge. "Non-techs will continue to fall by the way side. The venture capital firms are focusing on tech, transmission, communications and speed," said Tom Taulli, analyst at Internet.com. "There won't be any fast food chains going public."
"Technology companies will remain the vast majority of IPOs, but things could still swing back to established companies," said Randall Roth, an analyst at Renaissance Capital. If you build it, they'll buy the IPO Assuming the market for IPOs is there, investors can expect a bigger and better and longer line of IPOs on deck.
In 1999, with the Nasdaq was so high, it has been almost guaranteed that the IPO market will be hot," said Francis Gaskins of the IPO Desktop. "If that trends down, or if there is a correction, it will take the wind out from the sails of the IPO market," he cautioned.
About 518 IPOs will have come to market in 1999, according to Richard Peterson, analyst with Thompson Financial Securities Data. Though up considerably from the 374 IPOs in 1998, this year had less offerings that the 621 in 1997, or the record 874 in 1996. Though Peterson admits its hard to speculate on the number of deals that may come to market next year, he said he expect 700 or more IPOs in 2000, with 80 or so having filed registration statements already. The same old story? "I would be surprised, if 18 months from now, companies with such strong quarter to quarter growth were in the pipelines," said Francis Gaskins, adding that the last quarter of 1999 was a "particularly good time for IPOs."
"New segments may also opening up in the B2B arena," Taulli said. "Like Kana, the outsourcing company that came out of nowhere last year." Kana Communications (Nasdaq: KANA), which sells software that helps businesses manage high volumes of e-mail and Web site-based communications, popped 250 percent in its debut. "Companies are finding new ways to use the Internet to make money," Taulli said, also citing BeFree Inc. (Nasdaq: BFRE) as a category maker the likes of which we may see more of in 2000. Be Free, which flew up 142 percent in its IPO allows its e-merchant customers to pay their marketing partners only for their individual promotions that succeed by tracking viewing, clicks and purchases More "Me too" offerings Several of these first movers may also inspire imitators, Taulli said.
Companies like The Knot (Nasdaq: KNOT) will get lots of competition since they're easy to imitate, as companies like The Wedding Channel indicate. "There will be more imitator IPOs, but they won't have the strength of those first to market," Taulli said. "Next year at this time it will be the same story -- the trend will be business to business -- but the first movers have the market cap and the advantage.
Next year there will be some iffy IPOs in that space." "Unlike portals, you can't just start an infrastructure company in your garage," Taulli said. While many imitators will come to market, this year's infrastructure IPOs will continue to grow, and may not face much more competition. "Companies that specialize in a certain vertical -- like e-Steel -- will keep popping up," Taulli also predicted. "Anything wireless" AT&T (NYSE: T) said in December it will create a new company, AT&T Wireless Group, and a new class of AT&T common stock which will hit the market next spring in the biggest U.S. IPO ever.
The "unlocked value" of the wireless business is expected to bring in between $8 to $10 billion in its IPO. Hot issues for the next millennium include "anything wireless," Peterson said, adding that AT&T's spin-off is sure to be big. A lot more wireless companies may go public in 2000, predicts Roth. The debut of AT&T's wireless business will be phenomenal, and many others may try to match the enormous success of Phone.com (Nasdaq: PHCM), which has gained about 1400 percent since its IPO this year.
Phone.com provides Internet browser software for wireless phones and server software for wireless network operators. Look abroad In 1999 there were 20 foreign issues, and that was only the beginning of an onslaught of overseas offerings charging up to the plate. Investors will continue to weight the dangers of investing in a risky business that may not live up to American accounting practices, with the possibility of snagging a sure-fire winner. "Foreign ISP's should continue to be hot, as most countries are still two to three years behind the US," Taulli said. He predicts the foreign issues should keep coming to market for five to 10 years -- "and these are the first stages of building out infrastructure, before B2B starts to happen," he added. European offerings will be especially hot, Taulli predicted.
Foreign ISPs that went public in 1999 were all leaders in their markets. Terra Networks (Nasdaq: TRRA) and Korea Thrunet (Nasdaq: KOREA) were the first ones to market. Most of the leaders have already gone public now. The second runners may go public next year. Spanish Internet company Terra Networks soared 251 percent in U.S. trading, after rocketing up 130 percent on European markets. The company should continue to enrapture US investors with its plans to lead the underdeveloped online markets of Latin America. China.com (Nasdaq: CHINA) was also a hot foreign issue, up 360 percent from its initial offering price. The company has continued to gain momentum with a stock-split, and a spree of foreign acquisitions.
Day traders' delight
The IPO market may also get wackier as individual investors get more access to new issues. "There will be much more participation by retail investors in IPOs," Taulli said., anticipating that the deal inked between TD Waterhouse, Ameritrade and Charles Schwab will help keep the market strong, but will also sharpen the ups and downs caused by momentum investors.
The three firms, which currently serve more than 50 percent of active online investor accounts, are pairing up with VC firms to create a new company which will change the IPO process by giving individual investors more access to new issues. The online brokers will have exclusive rights to distribute the offerings underwritten by the new bank, which will mostly be of technology and Internet companies.
The company will also provide research to individual and institutional investors, and invest in later stage private companies. "Individual investors play around with the quiet period and lock-up period expirations - and the companies that are good at manufacturing press releases," said Taulli. "It's the very nature of electronic trading that causes this split-decision making - it will get worse as more individual investors get access to IPOs."