Forget Groupon, Watch for these 5 IPOs

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Ever since the stock market began plunging in late July, a wide range of companies that had intended to conduct an Initial Public Offering (IPO) changed their mind. S-1 registrations that were on file with the Securities & Exchange Commission (SEC) were summarily pulled, and a current roster of pending IPOs is as slim as it's been in several years.

But Groupon (Nasdaq: GRPN) changes everything. A 35% jump in first-day trading last Friday, Nov. 4, convinced yet-to-be-public companies, and the investment bankers that advise them, that the time may be indeed ripe to reconsider an IPO . [" Should You Invest in Groupon? "]

After all, the broader stock market has taken on a rosier glow in recent weeks, and barring any further major downdrafts, the process of lining up interest in coming IPOs has already begun. That said, bringing a company public takes time. As a result, look for few major IPOs for the rest of 2011, but a possible tidal wave them in the first half of 2012. Here are five IPOs that you'll need to closely track.

1. Angie's List
This is actually set to be a 2011 IPO, if the company goes public on Nov. 17 as planned under the ticker ANGI. This is a fairly unique business model : Subscribers get real-time, candid feedback on local suppliers such as contractors, cleaning services and other local merchants -- sort of a Better Business Bureau that is more on the consumer's side and less on the business' side. The company managed to boost sales 46% to $63 million in its third quarter, but you should know that the company is also losing money at a rising pace. Angie's List has consumed a lot of dough to build up a user base that now exceeds 1 million.

The key, in this highly-automated business model, is to prove that expenses will stop growing so quickly, and that the company can reach break-even by 2012 or 2103 -- at the latest. The near-term losses may make this a tougher sell than the Groupon IPO. In its favor, Angie's List doesn't appear to have a lot of copycat business models looking to steal market share , as is the case with Groupon. (Bank of America/Merrill Lynch is the lead underwriter , in case you have an account with them and want to score pre-IPO shares ).

2. Zynga
Right now, this IPO looks likely to take place in the first quarter of 2012, but if the company scrambles, an IPO could take place before the end of the year. The maker of popular games such as FarmVille and CityVille simply stole the thunder from traditional gaming companies like Electronic Arts (Nasdaq: ARTS) and Take Two Interactive (Nasdaq: TTWO) with a move to quickly develop games for websites such as Facebook.

Zynga is keeping investors abreast of business trends in advance of any IPO. Third-quarter sales rose 80% from a year ago to $307 million. A billion-dollar annual run rate after only a few years in existence is nothing to sneeze at.

Zynga has nearly 7 million subscribers, and the key will be the level of "stickiness" those customers represent (i.e. are these recurring customers?). To be sure, any IPO proceeds would lead Zynga to quickly accelerate game development and marketing efforts, hopefully before the next hot industry upstart comes along with the games that supplant FarmVille and CityVille.

3. Yelp

This website operator focuses on consumer reviews of restaurants, shopping, hotels and other niches. The company was ambling toward the IPO gate this summer, just in time for the market to turn ugly in late July. Since then, the company's intentions have become a little murkier. Management insists that an IPO is still in the cards, though since a prospectus has yet to be filed, an IPO this coming winter is the most likely scenario.

Yelp is kind of like a Zagat's on steroids. That company made its name as a restaurant ratings service though Yelp's interactive feedback nature. Along with its role in many other categories beyond restaurants, the company could start to look even more appealing. As a point of reference, Google (Nasdaq: GOOG) agreed to buy Zagats in September for $151 million. Yelp's backers likely aim to value their company many times higher.

4. Carlyle Group
For any fans of the TV show "Fringe," you know of "Massive Dynamics," the secretive government contractor that had a hand in many lines of business it can't even discuss. Well, the Carlyle Group should also appeal to the cloak-and-dagger set. As the company has evolved and management realized that a public offering was the best way for its investors to cash out, some of the more shadowy businesses have been sold off. These days, Carlyle looks a bit more like a venture-capital  firm focused on defense and security.

An early 2012 IPO, valuing the company at more than $8 billion, may actually be something of a bargain. That valuation would put it at a discount to other publicly-traded firms such as Blackstone Group ( BX ) and KKR ( KKR ) , in terms of price-to-assets.

5. Univision
This Hispanic market media giant was taken private in 2007 for a hefty $13 billion. As the S&P 500 has fallen some 20% since then, it's not clear that the firm's backers -- a consortium of leading U.S. buyout shops -- will get that money back in the likely 2012 offering. Yet they can be counted on to pull out much of its cash and load it up with debt in order to ensure themselves a respectable payday, regardless of the IPO size. As a result, IPO buyers will likely be buying into a debt-laden business model, which could run into real trouble if the U.S., Mexican and South American economies suffer. Then again, if these economies can build a head of steam, Univision would be a solid angle to play the still-growing Hispanic media market.

Risks to Consider: Further market weakness would keep the IPO market in lockdown mode for a considerable time to come.

Action to Take -->
Every IPO has its price, and until you know how each company is being valued, either before or after the IPO, you should look before you leap. If you have a relationship with a brokerage firm that serves as an underwriter in these offerings, then you may want to get a piece of the deal. (If not, it's often best to wait for a post-IPO stock to lose its first-day luster. Groupon, for example, is off nearly 15% from its first day intra-day high). Yet as I've noted before, investing after the IPO but before the " quiet period " ends may be a profitable trade. Analysts at these underwriting firms invariably tend gush about new business models, causing these new IPOs to surge after the "quiet period" is through.


-- David Sterman

Disclosure: Neither David Sterman nor StreetAuthority, LLC hold positions in any securities mentioned in this article.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas

Referenced Stocks: ARTS , BX , GOOG , GRPN , KKR

David Sterman

David Sterman

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