NEW YORK (TheStreet) -There has been a lot of debate of late about whether some of the pain in the so-called momentum names in the last month has something to do with growth money coming into the IPO space.
The momentum names in question? (1) The large cap biotechs like Gilead (GILD), Celgene (CELG), Biogen (BIIB), and Regeneron (REGN). (2) The cloud-focused names like Salesforce.com (CRM), Workday (WDAY), and Cornerstone OnDemand (CSOD). And (3) The social media, search, e-commerce and entertainment cohort like Netlfix (NFLX), Facebook (FB), Amazon (AMZN), and Google (GOOG).
My view? In 2013, we saw one of the best years in the IPO market. 222 companies went public and raised $55 billion in what was the most active year since 2000, according to Renaissance Capital, the IPO authority. And in a strong year for the overall market, with the S&P up 29.5% and led by momentum names, the average IPO return was 40.8%. So why can't this dual-track profit continue?
A couple of things. First, with the market at new highs, there is more trepidation about stocks that have clocked in big runs. Even if some of the new IPOs are coming in at premium valuations or have limited (or no) earnings, investors psychologically don't like to feel like they missed a big run ... and would rather come into a new name. Second, investors have seen the outsized returns in IPOs-- including GW Pharma (GWPH), ChannelAdvisor (ECOM) and Marketo (MKTO)-- and want to repeat those returns. Third, we are seeing higher quality companies come public - real business models with growth- creating more demand for new names. And, fourth, the volume of IPOs is higher than ever before. Already this year, there have been 77 IPOs that have priced. That's up 114% from last year. And 122 IPOs have filed year to date, up 165% from last year. These have also been concentrated in the biotech and technology (cloud) space--pulling away capital from the public names in those two camps.