When Will The IPO Market Tank?

We have already discussed, a number of times before, why today’s IPO market bubble is reminiscent of the 2000 Nasdaq top (search IPO on the right side). The question becomes, when will this IPO bubble pop?

This is rather easy. As soon as the stock market breaks down and begins it’s bear market. Based on our timing and mathematical work that time will arrive shortly. Once the market breaks below 15,000, most of the animal spirits associated with “hot yet highly speculative” IPOs will go out the window. Just as it should. If you would be interested in learning when the bear market of 2014-2017 will start (to the day) and it’s internal composition, please Click Here.

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When Will The IPO Market Tank? Google

CNBC Writes:Good times roll for IPOs: How long will boom last?

This has been a record year so far for European stock market listings – traditionally a sign that a region’s economy has returned to health.

The average size of fundraisings in Europe this year so far is $259 million, the highest on record, according to Dealogic. With the region’s economy still growing at a relatively slow rate, this is not just about greater confidence in the economy.

(Read more: Is the IPO market in a bubble? )

“First, there was a strong amount of cash available for investors in equities,” Klaus Hessberger, co-head of ECM EMEA at JPMorgan, told CNBC. He advised on the $6.9 billion sale of UK government shares in Lloyds Banking Group, the biggest deal in the region so far in 2014.

“Second, IPOs need some preparation time, usually more than six months – so this was a reflection of a positive market from summer onwards. Third, U.S. equity money is still coming into Europe because of the continued lower interest rate environment and fourth, there was also cash raised for M&A.”

Plenty of action is also driven by private equity groups “clearing out aging investments from their portfolios,” as Maria Pinelli, Ernst & Young’s global vice-chair of strategic growth markets, pointed out. She thinks the first half of 2014 at least will continue to be a good year for the IPO market.

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Good times roll for IPOs: How long will boom last?

Jin Lee | Bloomberg | Getty Images

With all the cheap money in the system, bankers believe the IPO boom has further to run. There is pent-up demand and a number of appetizing companies waiting to come to the markets.

“There is still some way to go to capture all the liquidity,” as Hessberger said.

In Europe, Goldman Sachs is topping the leaderboard of advisors in terms of value of IPO deals completed, with a market share of 13.6 percent in this year’s deals so far, followed by JPMorgan (9.7 percent) and Deutsche Bank (9.4 percent).

However, it isn’t quite 2006 all over again at investment banks.

There are still risks to continued outperformance, such as worse economic performance, as Hessberger pointed out.

Some of the more recent listings have been less well received, such as Candy Crush game maker King Digital, whose shares fell by 16 percent on their debut. And the most recent Lloyds sale featured a greater discount than the last tranche sold by the UK government.

There are also suggestions that some banks are having to resort to different measures to get in on IPOs, such as observing stricter guidelines against working with particular clients’ competitors and even waiving fees to be listed as part of deals they didn’t work on for existing clients.

The M&A and debt markets have not recovered in the same way. Revenues for these kind of deals are down 6 percent for M&A, and 22 percent for debt capital markets globally, according to Dealogic figures.

While there are a number of big money deals like the Time Warner Cable purchase pushing up M&A figures, the actual number of deals is down 14% compared to 2013 at this point, making 2014 the slowest year-to-date period by number of deals since 2003, according to Thomson Reuters data.

March 14, 2014March 14, 2014

IPO Madness Continues

IPO madness continues unabated. Today’s target? Castlight Health (CSLT), went public today at $16, and quickly shot up to $42, giving it a valuation of roughly $4 Billion. Not a big deal, you might think. Until you find out that the company has only $13 Million in revenue and huge net losses. With it’s valuation at 307 times it’s revenue this company better cure cancer and bring world piece to justify its valuation. In case you believe this sort of a valuation is alright, give me a call, I have some Nortell and Pets.com stock to sell you.

Just another nail into this bull markets casket. If you would be interested in learning when the bear market of 2014-2017 will start and its internal composition, please Click Here.

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IPO Madness Continues Google

Castlight Health: Most overpriced IPO of the century

In hindsight, it’s kind of funny that the big tech bubble debate this week focused on Candy Crush Saga owner King Digital Entertainment’s IPO filing. It’s funny because, on Thursday night, Wall Street priced the craziest deal since the heights of the Internet bubble and almost no one complained a bit.

That deal was for Castlight Health (CSLT), a company that offers health information via the Internet to inform medical choices and reduce insurance costs. Sounds like a pretty good idea, and Castlight says it has helped some of its corporate customers reduce their health costs by more than 10% a year.

Goldman Sachs, Morgan Stanley and other lead underwriters priced Castlight’s shares at $16, above an already raised expected range of $13 to $15, giving the company a valuation of $1.4 billion. That’s billion with a “b.” Last year, Castlight had $13 million of total revenue. That’s million, with an “m.”

Then the stock opened on Friday at almost $40, giving it a valuation of over $3 billion!

Insane valuation

Jay Ritter, a professor at the University of Florida and my go-to source on IPOs for the past few decades, tells me that Castlight’s insane level of valuation – 107 times revenue (not profits, as they had huge losses last year) – of the original IPO pricing hasn’t been seen for a tech deal since the year 2000, the twilight of the 20th century. Of the prior 13 deals priced at 100 times revenue or more and sales of at least $10 million, the average 3-year return was -92%.

Investors have been attracted by the siren song of market potential. With trillions spent on health care and everyone trying to save money, surely there’s a big market for Castlight’s services?

That’s probably true but it’s also obvious to a lot more folks than those at Castlight. Try the numerous private competitors, companies such as Change Healthcare, backed by investors including Blue Cross Blue Shield, and Healthsparq, which recently said it served 60 million consumers. And the big health insurers themselves, Aetna (AET) and UnitedHealth Group (UNH), for example, are already experimenting with similar services and giving them away free to major customers.

To be sure, it’s a great idea. One of the biggest hurdles to controlling healthcare costs is the complexity and obfuscation in the market. It’s hard to be a smart shopper when you can’t compare the quality of different providers or even know how much they’ll end up charging. Castlight and its competitors collect vast amounts of data and display relevant bits in a more clear and simple way to help consumers make smarter choices.

The next Netscape?

But there’s no way to tell who will win this theoretically huge potential market in the future, nor is there any way to predict how profitable it will end up. Castlight seems far more likely to end up as the next Netscape, which got obliterated when Microsoft decided to give away an Internet browser for free and wipe out Netscape’s whole business model of charging.

Investors who agreed to pay $16 a share for Castlight Thursday night seem more focused on the inspiring performance of other cloud-service stocks, such as Benefitfocus (BNFT), which went public at $26.50 a share last September and currently trades at $58, off its all-time high of $77 in January.

It’s pretty clear a bubble is inflating in this sub-sector of Internet stocks and Castlight makes that incredibly obvious. In early trading, Castlight’s $3.5 billion valuation is more than double the value of Benefitfocus though it has about 1/10 the revenue. Next week the bubble may inflate further when a couple more cloud service providers are expected to price their IPOs, including banking specialist Q2 and HR benefits provider Paylocity.

Meanwhile with all the competition for Castlight, the company is spending like crazy on marketing, R&D and the like. On its $13 million revenue base last year, it spent $34 million on sales and marketing, $15 million on R&D and $9 million on administrative costs. Bottom line: a $62 million net loss.

And then there’s the curious case of Castlight’s present business. The company already has 24 corporate customers in the Fortune 500, including Walmart Stores (WMT). The retailing giant, which covers more than 1 million people under its employee health plans, was responsible for 16% of Castlight’s revenue, or about $2 million, under a contract which expires at the end of 2015.

Does that seem like a massive revenue stream from one of the single largest healthcare providers in the nation? Not exactly. Again – they already have one of the biggest clients on the planet and the revenue is peanuts. Yikes.

March 11, 2014March 11, 2014

Unprofitable IPOs Don’t Scare Investors…Great

As WSJ reports, 74% of all IPO’s today are not making any money and/or are not profitable. Guess when that happened before? That’s right, right before the 2000 Nasdaq collapse.

But don’t worry. It’s different this time. After all, the investors are “NOT Scared” this time around….whatever that means. This is just another indication that the bear market is about to start and destroy bulls. Particularly, those playing in the IPO market. Earlier today I posted a good “Short List” that should get you started.

Since January of this year I have argued that the Dow Jones topped out on December 31st 2013 at 16,588. We continue to maintain this position as it is based on our precise mathematical and timing work. With the Dow pushing this level again, it is up to you to figure out what happens next. However, if you would like an exact breakdown and bear market composition of (2014-2017) please Click Here.

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Unprofitable IPOs Don’t Scare Investors…Great Google

A hot IPO market isn’t necessarily an optimistic development for the aging bull market.

Companies are going public at a pace reminiscent of the 1990s Internet heyday, a positive sign for young companies aiming to cash in on the rallying stock market. But analysts say the underlying mix of companies rushing to go public represents a warning sign for the stock rally.

Some 74% of companies that went public over the past six months weren’t profitable, the highest level since March 2000 when about four out of five new companies were money-losers, according to Jason Goepfert, founder of Sundial Capital Research and author of the SentimenTrader Daily Report. That same month, the Nasdaq Composite peaked before tumbling into a deep bear market as the dot-com bubble burst.

Since 1990, 42% of companies that have gone public, on average, haven’t been profitable, Mr. Goepfert says. In the early-to-mid 1990s less than 1/3 of these companies didn’t generate profits. This percentage rose through the tech bubble, fell afterward and rose again through the 2007 market peak before tumbling to as low as 15% in October 2009, seven months after the bear-market bottom.

In the past several years the percentage of unprofitable companies going public has hovered predominantly between 55% and 65%. It moved back above 70% early last month.

“This kind of behavior is troubling,” Mr. Goepfert said. “Not only do we have a willing public market ready to provide capital to these companies, but in many cases these are instances of professional investors selling their claims to a less-sophisticated public,” he added.

The list of newly minted money-losing public companies in the past six months includes microblogging platform Twitter Inc. and cybersecurity firm FireEye Inc.FEYE -0.08%Twitter shares have more than doubled off the IPO price; FireEye has more than quadrupled.

Investors don’t seem too perturbed by the trend. If anything, recent IPOs boast better returns than the broader market. The average U.S. IPO this year rose 19% from its debut through Feb. 28, and 5% from where it closed after its first day of trading, according to Dealogic. The S&P 500 index, meanwhile, has edged only slightly higher for the year.

To be sure, the IPO market has a long way to go before reaching tech-bubble levels. In the first two months of this year, 42 companies went public in the U.S., compared to 77 in the same period in 2000, according to Dealogic.

That’s why many stock investors aren’t willing to turn bearish right now.

In his weekly commentary, BlackRock strategist Russ Koesterich didn’t sound enamored with stocks, but he still considered them to be better than other alternatives.

“To start, we would say equities are no longer cheap and that stronger economic growth will be needed to drive earnings and prices higher,” he said. “But we do believe stock prices are more likely to head higher rather than lower from here,” Mr. Koesterich added, while cash investments “are effectively paying nothing, and traditional areas of the bond market offer little return after factoring in the effects of inflation and taxes.”

Even with a pricey stock market and an increasingly frothy IPO market, the fact that inflation and interest rates are low and the economy is gradually improving offers “sound arguments for overweighting stocks,” he says.

Morning MoneyBeat Daily Factoid: On this day in 1888, a brutal blizzard smacked the Northeast, resulting in a shutdown of communication and transportation lines along the U.S. Atlantic Seaboard. More than 400 people died from the storm.