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How can we predict whether or not this IPO will make a big pop on the first day and maintain a longer-term premium over its IPO price? Maybe this is an IPO we should entirely avoid, or, at best, try to buy in the aftermarket if it falls below the IPO price? These are the significant questions anyone who places an Indication of Interest for this IPO must ask themselves BEFORE they accept an IPO allocation. I've summarized below some of the factors which influence how an IPO will perform coming "out of the gate". Please add your ideas to this list: 1. Who is the lead underwriter? How do it's IPOs perform in the after-market? IPOs underwritten by Goldman Sachs, Wm Blair, Merrill Lynch, and Morgan Stanley Dean Witter are almost always big winners. IPOs from DLJ, Credit Suiss First Boston, H&Q, BTAB, and BancBoston RS sometimes work sometimes don't. IPOs from Volpe or Ing Baring should probably be avoided. 2. What is the Float and what is its relative size to Total Shares Outstanding? IPOs with floats around 2-4 million shares which represents about 25% to 33% of total shares outstanding perform better than IPOs with 6-10 million or more share in the float or which are a smaller percent of total shares outstanding. 3. How fast is Revenue Growing and what is the relationship of Revenues to Costs? Also, does the company operate in a rapidly growing or hyped-up market niche (e.g., dsl in 1999)? IPOs, like MRBA, MKTW, MMXI, CMTN which all have strong annual (year-to-year) sales growth of 100% to 300% AND where Costs are NOT INCREASING at the same rate as sales (i.e., costs are either decreasing absolutely or are increasing at a slower pace than sales) perform better than IPOs with stagnant sales (e.g., ONES) or with costs INCREASING FASTER than sales (e.g. NETO). 4. Is the company the "first-mover" in its market niche? Does the company have strong branding awareness? For example, Etoys or IVIL or MKTW being the first to go public in their niche and being well-known to the online community are better performers. 5. Who backed the company during its "incubation" and who are the major stock holders? ETYS was funded by idealab!, Highland Capital Partners, and Sequoia Capital Partners (of Yahoo! Fame). IPOs with little prior backing may not be good long term investments. 6. Has the company's management been successful in previous ventures? Does the management have "star" or celebrity appeal? Cramer's notoriety on CNBC certainly helped TSCM to pop on its first day. So how does this IPO stack up against these criteria? Please post your ideas. Source for information about sales/costs, number of shares, and major shareholders: ipomaven.com Source for information about underwriter's performance: quote.com Source for information about the management team and their experience: sec.gov | ||||||||||||
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