IPOs were up threefold in 2004, to 216

On average, shares rose 30% over offering price

December 29, 2004|By Josh Friedman | Josh Friedman,LOS ANGELES TIMES

Google Inc.'s stock debut grabbed the headlines this year, but the revival of the market for initial public offerings was no one-hit wonder.

The IPOs of 15 companies have racked up bigger post-offering gains than the 119 percent increase in the price of Google's shares since their debut in August.

The comeback of the IPO market has been a hot story on Wall Street, because it suggests that many investors are willing to take risks again.

The dot-com crash that began in 2000 caused the IPO market to shrivel and damped many companies' hopes of raising money for growth. That changed this year.

"In a lot of respects, 2004 surprised people, not just the sheer volume of deals and proceeds raised, but also the returns," said Paul Bard, senior analyst at Renaissance Capital's research Web site IPOHome.com in Greenwich, Conn.

"After the fallout from 2000 and three very challenging years, those who dared to jump back in were rewarded."

The average IPO this year has risen 30 percent from its offering price, surpassing the gains of major market indexes and the best showing since 1999, according to IPOHome.com.

The number of deals, 216, and the money raised, $43 billion, were triple last year's levels.

And if investors remain interested, many more new issues could arrive next year. About 120 IPOs are in the wings, more than twice the number of a year ago.

The pickup in activity has helped not only companies seeking expansion capital, but also stock market investors hunting for new opportunities, venture capitalists who provide seed money for young companies, and law firms and other service companies that work on the deals.

"There is a virtuous network effect that helps the economy," said Tom Taulli, co-founder of CurrentOfferings.com, a research company in Newport Beach, Calif.

The stock of fingerprint-identification systems maker Cogent Inc. is the third-biggest gainer among IPOs of U.S. companies this year, according to IPOHome.com. The company went public Sept. 23 at $12 a share. Its stock has since zoomed 188 percent, closing at $33.04 on the Nasdaq yesterday.

Online retailer Ecost.com Inc. has gained 162 percent from its August debut, and Internet search company Interchange Corp. is up 133 percent from its October introduction.

DreamWorks Animation SKG Inc., which developed the Shrek movie franchise, also has received a strong reception from investors. The stock was at $28 in October, higher than expected, and has climbed 33 percent since, to $37.19.

The benefits of the IPO rebound have extended beyond the United States. Investor interest in the booming Chinese economy was evident in the year's two best-performing new stocks. Shanda Interactive Entertainment Ltd., which creates online games, is up 259 percent from its offering price, and 51job Inc., an employment ad company, is up 257 percent. Both are based in Shanghai but list their shares on Nasdaq.

Many analysts see the IPO market's momentum carrying into next year, in part because there is pent-up demand among investors and deal makers. Many of the deals in the works are from companies that have good stories to tell, experts say.

One deal likely to attract attention early next year is from Dolby Laboratories Inc., which plans a $460 million offering. The company, founded by audio technology pioneer Ray Dolby in 1965, holds more than 50 patents and collects licensing fees from entertainment products.

The fast-growing online ad company Fastclick Inc., which has said it plans a $92 million IPO, also could be popular early next year, Taulli said.

A spillover effect from robust IPO demand can be seen in the merger-and-acquisition market. Rent.com, which had been expected to file for an IPO, agreed last week to be bought for $415 million by the online commerce giant eBay Inc.

Although the return of many dot-com IPOs might remind some investors of the market bubble days of 1999 and 2000, IPO companies in general are far more solid today, analysts say.

Bard said 64 percent of the companies that have gone public this year were profitable at the time, a far cry from the days when dot-com companies with no revenue or profit persuaded investors to make a leap of faith.

Although analysts say the IPO market appears sound, they warn investors that the easiest gains might be in the past. Many IPOs had to slash their prices to entice buyers this year, which helped the stocks tack on bigger market gains later. Even Google's offering in August was initially considered a flop.

In recent months, however, underwriters have priced deals more aggressively, bringing in more money for the companies but leaving less room for public investors to benefit from any increase in subsequent trading.

For companies riding the IPO wave, going public often brings more than just cash for growth.

"More and more people recognize the benefit of our technology," said Ming Hsieh, Cogent's chief executive, who became a billionaire in Cogent's IPO. "We're better able to compete for bigger jobs."

The Los Angeles Times is a Tribune Publishing newspaper.

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