Investors Anticipate That IPO Upturn Will Continue

By Avi Stieglitz
Staff Reporter

For ever-stylish Wall Street, initial public offerings are coming back into vogue. And it looks like the renewed vigor in the IPO market has some sustainability.

As the stock market, and especially small-caps, took an ugly bruising earlier this year, investors lost interest in IPOs. Only 32 IPOs priced in April -- the lowest monthly total since February 1995. But over the past few weeks, small stocks have rallied and IPOs have enjoyed broader success.

So far this month companies have raised $1.5 billion from the IPO market compared with $1.3 billion in all of April, according to Securities Data Corp.

The most dramatic evidence of the turnaround came last week when two IPOs shot into the stratosphere on their first day of trading. Morgan Stanley offering Rambus (RMBS:Nasdaq) was priced at 12, above its 8-to-10 range, and promptly rose over 150% to 30 1/4 on its first day. Then, the much-anticipated Amazon.com (AMZN:Nasdaq) offering showed that Internet stocks still have allure as it jumped from 18 to 30 1/2. Its initial price range was 12-to-14. Its stock has since dropped back to 20.

"As hot as they were, I guarantee you that if [Amazon.com and Rambus] were brought earlier this year, you would have seen something materially different," says Michael Moe, the head of emerging growth at Montgomery Securities. "You could have had the cure for cancer and guess what: It wouldn't have mattered."

During a six-week stretch between mid-March and late April, not a single IPO was priced above its filing range, something that has not happened since 1990, says Moe. He adds that typically 15% to 25% of all IPOs get priced above the range.

This contrasts with last year's exuberant atmosphere when investors were snapping up nearly any offering that underwriters put on the block. In the first half of 1996, about 30% of all IPOs were priced above the offering range; and in May a whopping 42% priced higher than expected, as 299 companies went public.

This year, many of those strong starters faltered. For example, Planet Hollywood (PHII) has fallen more than 30% from the high it reached shortly after it went public in April 1996, and February 1996 IPO Mossimo (MGX) is down more than 80% from its summertime peak.

Remarkably, despite the weak demand for IPOs earlier this year, Jack Fitzgibbon, editor of the The IPO Aftermarket, says that new issues in the aftermarkets have surged so much since bottoming out in April that they are up 12.5% in 1997 through Friday. That figure was higher than the Dow's 11.5% gain and the Nasdaq's 3.8% increase for the same period.

And there are no signs that IPOs will slow down from here. Polo Ralph Lauren and Mortimer Zuckerman's Boston Properties both have glitzy IPOs slated for June.

Meanwhile, the success of Amazon.com and Yahoo! (YHOO) has renewed interest in speculative Internet stocks. AtHome, a developer of high-speed data networks that has garnered much attention for its cutting-edge technology, has said that it would go public and PointCast, a major player on the Internet, is rumored to be considering a similar move. All of that spells continued strength in the IPO market.

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