IPO Outlook: Googly Eyed in 2004

FormFactor (FORM Quote) is an example of the new breed of IPO that Wall Street seems to appreciate. The semiconductor-equipment manufacturer had double-digit revenue growth when it went public last June, and it also had been making money in each of the last four years. Shares are up approximately 30% since the offering.

Investors have high hopes for an offering from Web search engine Google. "It would be reminiscent of the Netscape IPO," said David Menlow, president of IPOFinancial.com.

Before being acquired, shares of Netscape were up 250% from their issue price. The stock's meteoric rise is viewed as the first puff of air into what became the Internet bubble. That Google would be able to mimic that kind of performance in this day and age, some believe, is unlikely. It also may be undesirable.

"Google is being hyped too much," said Bard. "Investors are comparing it to eBay(EBAY Quote), Amazon(AMZN Quote) and Yahoo!(YHOO Quote). But it would be coming public as a much more mature company.

"That does not mean the stock could not generate strong returns," he added. "But I do not think it would offer the value creation that eBay, Amazon or Yahoo! did."

Elsewhere, the IPO market will see a number of spinoffs next year. "A lot of large companies are stripping out noncore assets as they try to unlock value," Bard said.

Motorola (MOT Quote) has set plans to separate its semiconductor operations into a public company. And General Electric (GE Quote) is looking to spin off its life insurance and mortgage divisions.

Meanwhile, a slew of China-related companies are expected to come public following the recent China Life and CTrip.com(CTRP Quote) listings.

"I would expect more China-based IPOs, as the economy there has cranked up and the business environment is healthier than it was a few years ago," said Francis Gaskins, editor of IPODesktop.com. "There is also greater transparency in income statements."

In 2004, investors are likely to get new rules from the NASD on how IPOs are sold. In November, the NASD announced several proposals. One would require underwriters to disclose allocations to issuers. Another reform would prohibit brokers from accepting a market order for one trading day after the company went public.

Back in the day, investors who placed market orders on a stock's first day often wound up buying shares at the height of an explosive rally, only to watch them drop off later.

"This is a step in the right direction, but more needs to be done," said Bard. "We have always talked about disclosing allocations to investors and about making road shows available to the public. We'd also like to see changes highlighted in an amendment to a prospectus. Why not make that easier for investors?"

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