Do you want to make a ton of money this year?
Then you simply cannot turn up your nose and ignore the new class of initial public offerings (IPOs). Simply put, 2014 is going to be a huge year for IPOs.
If you take a look back at 2013, you’ll see that all-new offerings returned an average of 36% — with several returning easy triple-digit gains. Some of these companies could even have returned you triple your money in only one day. In fact, the average tech IPO rocketed 41% in its first day alone.
But these returns aren’t all high-flying tech stocks…
Benefitfocus (NASDAQ: BNFT), which provides management for employee benefits, jumped 102% on its first day. Potbelly (NASDAQ: PBPB), the chain sandwich shop, returned investors 119% on day one. Health-minded grocery chain Sprouts Farmers Market (NASDAQ: SFM) more than doubled its IPO price on its first day, hitting gains of 123%!
You could have made an immediate killing with any combination of these IPOs.
And this year will be even better…
So far this year, with stocks generally taking a beating, the 2013 IPO class is still going strong. While the overall S&P 500 has taken a half-percent dip, those new IPOs have enjoyed an easy 5% gain so far this year.
That figure shows that 2013’s IPOs have largely escaped the pattern of big-time investors cashing in right after they dump the shares off on the unsuspecting public.
Most IPOs typically enrich the initial backers, who buy the stock at artificially low prices, and hose the individual investor, who buys up whatever is left at inflated prices. He is the one left holding the bag when the big guys unload their shares and run for the hills.
But things are starting to change, and we think 2014 has an even more robust selection of new companies to invest in. Let’s get started…
Alibaba
Alibaba is perhaps the biggest IPO of the year. It’s an e-commerce company on steroids: the Chinese company rolls Amazon, eBay, and PayPal all into one company.
In fact, according to The Economist, in 2012 “two of Alibaba’s portals together handled 1.1 trillion yuan ($170 billion) in sales, more than eBay and Amazon combined. Alibaba is on track to become the world’s first e-commerce firm to handle $1 trillion a year in transactions.”
This is going to be big…
It is expected to be the single largest IPO since Facebook, which broke records with its $104 billion initial valuation. Estimates on Alibaba have clocked in between $128 and $153 billion. A new report from Cantor Fitzgerald claims that “Alibaba is still sustaining break-neck growth rates” and values it at a whopping $152 billion.
You cannot ignore a company this massive…
Look for its IPO announcement in the coming months.
Square, Inc.
Co-founded by Twitter founder Jack Dorsey, Square allows small businesses to accept payments via smartphone.
I first noticed its value when I was shopping at a local art festival in Baltimore a couple summers ago. There were two vendors whose artwork I really enjoyed. The first only accepted checks and cash. I had neither, so I took my money to the booth next door…
There I found a wonderful painting of the Baltimore skyline. When I asked the vendor if he accepted credit cards, he smiled and whipped out his iPhone, which had this device attached to it:
He swiped my card, I signed directly on his iPhone, and I left with my painting.
The first vendor got a whole lot of nothing.
At that point, I knew this would be the future of payment processing, and I tried to find out all I could about the company.
For one, it’s the biggest player in a market that is certain to expand. Just look at this Business Insider forecast for mobile payments:
Sales have already hit $550 million this year on a whopping total payment volume of $20 billion.
Square is currently in talks with Goldman Sachs and Morgan Stanley for its 2014 IPO. It has already raised almost $400 million from big-name backers like Yahoo! CEO Marissa Mayer and globetrotting billionaire and Virgin founder Richard Branson.
Now, it kicks most of that money back to credit card companies like VISA and MasterCard, but there is still plenty of cheddar left over for a profit-generating monster. Dorsey is already secretly discussing a plan to make Square profitable by 2015, according to an inside leak to the Wall Street Journal.
Aside from the Square card readers that allow financial transactions to be conducted via smartphone, the company is currently developing “virtual wallet” software that would allow consumers to pay for things without using a credit card at all.
This will be a big company, but just how big remains to be seen…
We’ll get a glimpse when we find out how much they decide to value their stock when they finally do go public.
Airbnb
I love Airbnb… and have for some time.
When it launched in 2007, it averaged about a booking a day. Now, travelers are using Airbnb to scoop up a rental property every two seconds…
That’s some serious growth.
That’s because it is a legitimately awesome company. I know because I’ve used it several times to book some incredible vacations.
For example, I tapped into Airbnb’s database last year when planning a trip to Austin, Texas. My brother, some friends, and I went down for the South by Southwest Festival and were having some serious trouble finding an available hotel room that wasn’t booked… or wildly overpriced.
After checking out Airbnb’s listings for just a few minutes, I found a plethora of beautiful homes just minutes from the bustling downtown area. The one we chose was a fraction of the cost of a boring hotel room — and boasted a full kitchen, rooftop deck, private pool… even a wet bar!
And keep in mind, the home was far cheaper overall than if we had rented a series of hotel rooms.
Not only was the environment of the house more inviting than a hotel, but I was also able to chat with the owner of the home before our trip. She gave us a wealth of information about local attractions and restaurants that we would not have taken advantage of had we opted for a traditional hotel stay. And when we arrived, she had a bowl of the best guacamole I’ve ever had waiting for us!
Sheraton, eat your heart out…
Here’s how Airbnb describes itself:
Whether an apartment for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point, in more than 33,000 cities and 192 countries. And with world-class customer service and a growing community of users, Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions.
The only thing preventing Airbnb from completely upending the hospitality industry is local regulations. Since hotels have deep coffers, you can expect them to fight Airbnb tooth-and-nail for their share of travelers’ cash.
We’ll be covering those battles leading up to its IPO announcement.
Lending Club
As an Outsider that hates big banks, I’m especially intrigued with this peer-to-peer lending company. They crowdsource loans between members, allowing borrowers to apply for cheap loans and individual investors to bank juicy interest payments on those loans.
The real selling point — besides avoiding the banking cartels — is that the company provides loans at a fraction of the cost of a big bank.
From Forbes:
Operating cost as a percent of outstanding loans at traditional banks is typically 5% to 7%, but at Lending Club it’s less than 2%. “When you pay 17% interest on a credit card, 7% goes to paying the cost of the bank. We’re fully online and we use technology to lower costs,” he says. “A lot of banks are discovering that we we can underwrite, price and service loans at lower costs than they can.”
And that already has some big banks playing defense. Wells Fargo has even banned its employees from using peer-to-peer loan companies like Lending Club.
You know if the banks are fighting it, it has serious potential to cut into their mammoth profits. Why in the world would I pay more on my loan to a bank I despise? I’m at a loss to find any reason at all…
Here are Lending Club’s updated numbers at the time of writing:
- Loans funded to date: $3,666,333,350
- Loans funded last month: $258,362,975
- Interest paid to investors: $338,140,378
These numbers will continue to grow as more borrowers ditch their predatory banks and obtain loans through peer-to-peer businesses like Lending Club.
Lending Club is targeting May or June for its IPO.
Profits from 2014 IPOs are ripe for the picking. If this year is anything like last, you can expect to pull in double- and triple-digit gains on many of these new companies.
We’ll be breaking them all down individually as their IPO dates approach.
