IPOs Post Another Record, Raising $3.7 Billion in January

Undaunted by the Nasdaq's postmillennial ups and downs, the IPO market roared to a boisterous start last month. The first day of February proved no different.

According to Thomson Financial Securities Data, IPOs posted their best January ever. Considering the stock market as a whole lost ground last month, when little IPO action was expected, the IPO well looks ready to keep gushing. Tuesday's action, featuring three 200%-plus first-day pops, will certainly do nothing to change that sense.

Nonetheless, IPO market observers suggest that the very strength of this year's early action could come back to haunt future new offerings, even as they note the high-profile plays set to hit the market toward the end of this month.

Hot in the City

For January, the 20 issues that went to market raised $3.7 billion, compared with 12 IPOs raising $917 million in January a year ago. IPOs did well in part because of the mammoth John Hancock Financial Services (JHF Quote) offering, which raised almost $1.5 billion on Jan. 27.

"Even with volatility in the Nasdaq, the IPO market's been extremely strong," says Tom Taulli, an IPO analyst with internet.com.

February promises to be just as active. As many as 60 deals are on the calendar, according to Thomson Financial, and the five that hit the public markets Tuesday set the tone for what should be another stellar month. Thus far, underwriters don't seem timid to price IPOs above their original ranges.

I Like Tuesdays

That observation is illustrated by a look at the three leaders in Tuesday's IPO action. Turnstone Systems (TSTN Quote), a digital subscriber line company based in Mountain View, Calif., whose deal was underwritten by Goldman Sachs, was priced at 29 after increasing its range to 23-25 from 15-17. The stock skyrocketed Tuesday to an intraday high of 106 and closed at 97, 234% above its offer price.

Quantum Effect Devices (QEDI Quote), a chipmaker based in Santa Clara, Calif., also upped its price range to 13-15 from 10-12 before being priced at 16. The stock reached an intraday high of 65 and closed at 56 1/2, up 253%. And San Diego, Calif. biotech company Sequenom (SQNM Quote) revised its range to 23-25 from 16-18 before being priced at 26. The stock closed Tuesday at 79 1/4, up 205%.

Tuesday's activity also underscored investors' interest in foreign IPOs. Impsat(IMPT Quote), a Latin American telecommunications network and Internet services company, upped its price range to 15-17 from 13-15. The stock closed Tuesday at 29, 71% above its offering price of 17.

Too Strong?

But analysts say the trend of pricing high may not continue. "You're seeing very strong pricings, but it could dampen people's enthusiasm," says Randall Roth, senior analyst with Renaissance Capital's (IPOSX Quote)IPO Plus Aftermarket fund. "People would like to be given more discounts. ... It reduces the pop and in some ways retards the hype."

And not all sectors will see such success in the public markets. "This might be the end of the e-tailer trend," says Taulli. "We might see some of the last e-tailers go public in the first part of this year." E-tailers Buy.com and Pets.com are scheduled to brave the IPO waters this month.

Investors may overlook e-tailers in favor of higher-profile deals, such as Morgan Stanley Dean Witter-led offering Avanex, a Fremont, Calif.-based company that develops fiber optic products. And of course there's always Palm, the 3Com(COMS Quote) subsidiary and high-profile maker of personal digital assistants, which is being underwritten by Goldman Sachs and is expected to hit the public markets at the end of February.