ipo Archives - Page 4 of 4

October 21, 2015

JP Morgan, Motif Investing open up IPO investing

motif investing and jp morgan launch ipo trading

Since its launch, Motif Investing has championed creating low-cost, high-value portfolio creation tools for individual investors.

Founder and CEO of Motif, Hardeep Walia joined me on the Tradestreaming Podcast early in the company’s maturation cycle to talk about how Motif fits into the historical narrative of opening up investing tools and tech to individual investors:

So, what we do is we create indexes around these ideas and we focus on making investing very intuitive. It is as simple as, “I see something, an idea that I want. I want to put money to work and I don’t necessarily want to spend tons of time messing around with research in stocks, because I believe the index will do its job.” Then, we have very sophisticated investors who say, “You know what, just give me a starting point for a portfolio of stocks that actually act on these ideas,” and that’s what Motif is.

Motif announced today that it would take another step to opening up a traditionally opaque part of the investing world: IPOs. As part of a partnership with JP Morgan, the online broker is offering everyone access to IPO shares with as little as a $250 investment.

The new partnership “will broaden access to IPOs to more individual investors,” said Michael Millman, Co-Head of Americas Equity Capital Markets and Head of Technology Investment Banking at J.P. Morgan, in a statement. “Motif’s innovative and easy to use platform is a cutting-edge, differentiated way for issuers to reach investors.” J.P. Morgan will be encouraging its IPO companies to participate in the Motif program. Source

Motif appears serious in bringing its style of investing to the IPO market and it looks like JP Morgan may be the first of bulge bracket firms that bring offerings to the startup online broker.

IPO markets: Profitable, broken, and in need of fixing

IPOs have traditionally been a black box of the brokerage industry. “Book building” for IPOs, the process through which brokers went out to their clients to match supply and demand for shares, was completely opaque. Because IPO shares frequently pop after they list for trading, shares of top offerings were frequently reserved for the best customers of brokerage firms (high net worths and hedge funds).

In sought-after IPOs, it was very hard for general investors to get their hands on them. Because of such scarcity, investors requested larger than appropriate allocations for their portfolios in the hope that they’d end up with a better size allocation when the brokerage firms cut back their customers back . Because of this dynamic, in lackluster public offerings, investors frequently got “stuffed” with more shares than they really wanted.

The IPO process is one of the last holdouts in the face of digital disruption and that’s because IPOs play an important role in the brokerage business — they were a way for the brokerage firms to reward their best customers. Investment banks frequently underprice shares on their floats, providing quick profits to buyers of shares. The other side of this coin is that companies going public leave money on the table because of this underpricing. Investment banks come out looking good and brokerage firms are lauded by their customers.

Historically, there have been various attempts at disrupting the IPO process, including:

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[x_icon_list_item type=”dollar”]Dutch auctions: Investment bank, Hambrecht pioneered a form of dutch auction for IPOs, something it calls OpenIPO. In this model, the investment bank collects bids from all interested investors, big and small, and groups them by how much each is willing to pay for a share. Its bankers then count down from the top bid until they reach the highest price at which the selling company could sell all of the shares it wants to offer. The company can choose that price or, for various reasons, a lower one. Hambrecht then sells at the chosen price all the shares that were bid at that price or higher. One of the most famous IPOs to implement the OpenIPO process was Google, but few companies have really followed suit.[/x_icon_list_item]

[x_icon_list_item type=”dollar”]Equity crowdfunding platforms: With various new regulation in place (2012’s JOBS Act), the market has been kind of waiting to see equity crowdfunding platforms (like AngelList, CircleUp, and OurCrowd have popularized) perform the role of taking a private company into the public realm. It hasn’t quite happened, as regulation still relegates participation on crowdfunding platforms to accredited investors. It will take some more time before the general public will get a chance to transact in private companies.[/x_icon_list_item]

[x_icon_list_item type=”dollar”]Direct to consumer: There are a few firms like Cutting Edge Capital that working on Direct Public Offerings, a takeoff of the IPO but simpler and more accessible to general companies looking to list on a local exchange. Paperwork, filings are all easier to get going and it enables a company to market its securities to a local audience. Other firms, like Loyal3 , are creating investment platforms that make ease the IPO marketing for consumer brands and help them provide shares to loyal customers. Companies like GoPro and GoDaddy have used Loyal3 to distribute shares to their customers.[/x_icon_list_item]

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Motif Investing’s approach is to create a personalized investing experience around individual investors. Individual investors can create thematic portfolios (called, motifs) and trade them with one click for a low fixed fee. Motif customers can share and implement company-built motifs or use those shared by others on the platform.

Who knows, maybe an IPO Motif is in the works.

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April 4, 2011June 27, 2016

How to use Google search data to invest (transcript)

This transcript is of a conversation I had with Dr Joey Engelberg, Professor of Finance at the University of North Carolina’s Kenan-Flagler Business School (listen to the podcast). You can always subscribe to Tradestreaming Radio on iTunes.

In my book, Tradestreaming and on my website, I talk a lot about what I call collateral research. This is information that’s inherently non-financial in nature, but that investors are using to aid in their investment decisions.

Using Google Search Data to Invest by tradestreaming

One example I talk about in the book specifically is Amazon sales data. You can go onto Amazon.com, look up best selling computers, and you can get a list at that moment in time, updated hourly, of what’s selling well. So, if you were an investor in Apple, and Apple was introducing a new product to the market, that information, although it doesn’t say specific sales numbers, of what Apple itself is seeing through selling on Amazon, that information is at least important in the sense of how well a product may be received into the market.

Another area of concern for investors, of interest, is Google search data. Google recognizes that itself, and launched about two years ago on Google Finance something called Google domestic search trends, GDST. That’s a mouthful. What that is basically is Google itself is looking at a vertical search, something about the auto industry, unemployment, something where there are a series of search terms around a particular category, and then mapping them against the volume of other search queries.

So, you can get a feel for, qualitatively, how a certain search term or industry is trending vis a vis the rest of the search market. You can then overlay that information on top of an ETF or a mutual fund that may track that industry, and you can get a view for how well some of that data may, or may not influence future price movements.

Today’s guest on the podcast is Joey Engelberg, who studied this actually quite intensely. He’s a Professor of Finance at the University of North Carolina, the Kenan-Flagler Business School. He previously worked at the SEC, as a research specialist.

He recently produced a paper that caught my eye, called In Search of Attention. That basically looks at Google search data and tries to map it to future price movements. He actually did find a correlation that certain abnormal trends in search data can lead to abnormal returns in the stock market.

Continue reading “How to use Google search data to invest (transcript)”

March 28, 2011July 6, 2016

How to use Google search data to invest (podcast)

tradestream radio, discussing investing and technology

In my book, Tradestream, I talk a lot about what I call “Co-lateral Research”. This is information inherently non-financial in its nature that investors can use to make better investment decisions.

Take Amazon Sales Ranking, for example. Amazon provides almost real-time ranking of its best selling items. While Amazon won’t reveal exactly how many units of Apple’s ($AAPL) iPad it’s selling, investors can get a qualitative feel for how well products are moving.

Summary

UNC Professor Joey Engelberg has been studying another form of co-lateral research, Google search data. He’s been studying search trends for stocks (ie $PCLN or $NFLX) as a way to measure investor attention. Prof Engelberg has found a linkage between changes in search volume and subsequent moves in stock prices. He joins us for this installment of Tradestreaming Radio.

We discuss

which particular stocks investors pay attention do during the trading day
the demand side of news and information for stocks
how Google search volume is correlated to stock pricing
a trading strategy that uses search volume to beat the market

Listen below

Resources:

Listen to the podcast
Subscribe to Tradestreaming Radio on iTunes
Professor Engelberg’s homepage
Engelberg’s paper: In Search of Attention (Engelberg, Da, and Gao) (.pdf)
More episodes of Tradestreaming Radio
Google Insights for Search

January 25, 2011

When searching for stock gains, use Google (search data)

A wealth of information creates a poverty of attention

Smart investors avail themselves of all valuable resources as inputs into the investment research process. I write about this faculty in my book Tradestream in the chapter “Co-lateral Research“. What co-lateral research means is all the non-financial/non-traditional sources of information that can be used by investors to connect-the-dots.

I’ve written about Google Domestic Trends, search volume data Google has made public and overlayed on top of stock index charts. GDT continues to be a good resource for investors.

And now, there’s more research to support using Google search data to auger where markets are headed.

In In Search of Attention, researchers found that Google’s Search Volume Index captures retail investors’ attention in stocks.

Among our sample of Russell 3000 stocks, stocks that experienced an increase in ASVI [me: abnormal search volume index reading] this week are associated with an outperformance of more than30 basis points (bps) on a characteristic-adjusted basis during the subsequent two weeks. This initial positive price pressure is almost completely reversed by the end of the year.

The paper also finds that increased search volume leading up to hot IPOs may be responsible for that big first-day pop! that such issues experience.

As the first paper that has really looked at search data from an investing standpoint, this should be piped and smoked. In fact, the authors conclude the paper with a somewhat foretelling statement:

Search volume is an objective way to reveal and quantify the interests of investors and therefore should have many other potential applications in finance. We leave those for future research.

Bring it on.

Source

In search for attention (Da, Engelberg, Gao), November, 2010

HT: Net//Worth

January 24, 2011

Investing in the next mashup

Technology continues to run riot over a variety of industries. Nowhere has that been felt as acutely as in the music industry. Apple’s ($AAPL) iTunes may have changed the distribution model (selling over $1B in the last financial quarter alone), basically unbundling CDs and selling individual songs a la carte.

Music, it is a changin’

But the migration from analog to digital has been accompanied by a much more profound change — the revenue model of the music industry is undergoing a transformation. Where the model was previously selling musical media (artists generally made lots of loot by selling records/tapes/CDs), the model is changing to charging for music experiences (see my recent piece on the business of Broadway and concerts).

Artists embracing this change have shifted their model to almost giving away music (or charging fans whatever they want to pay) in order to capture some funds at the next concert.

Fast Company has a very interesting rundown on Girl Talk, a biomedical-engineer-turned-DJ who makes music by mashing up others’ tunes. Simply, he takes hundreds of samples of music and weaves them together, creating cool sounds but even more enjoyable live shows. He’s putting butts in the seats because he’s providing great live value.

IPOs, Social Media and the Era of the Mashup

We’ve all read how Facebook, Twitter, and LinkedIn are gearing up to go public sometime soon. While these services seem novel, in essence, they’re all just mashups of technologies and platforms that existed before Zuck entered his first frat party (not to sound snobby, but there aren’t frats at Harvard).

Startups and traditional companies are making lots of money just copying Groupon’s model of group discount buying. Travelzoo , a decidedly Internet 1.0 company, has a Groupon-like clone that offers expiring travel deals to its email list of over 20m and that 4-month old business is rumored to be valued at $400M. Abe’s Market, an Etsy-like green marketplace founded by my friend, Richard Demb, is experimenting with live selling online with its Abe’s Live, combining the breadth of vendor-driven supply and the entertainment value of a QVC.

The future of business is the mashup. Those companies who can climb to the top of the value pyramid — by leveraging and riffing on the work done on by those along the way — will win and that’s where investors should be looking to place their bets, IPO or not.

More Resources

How Girl Talk Mashes Up the Music Biz (Fast Company)

Download Girl Talk music

January 5, 2011

What the fat IPO pipeline means for investors

The size of the opportunity

We’re gearing up for some really interesting activity in the IPO market in 2010. To put things in perspective, in 2010, IPOs returned 72% more money than the companies that exited in 2009 (although at $40B, that’s still about 40% less than peak levels in 2007).

According to Sarah Lacy’s recent article in TechCrunch, Exits Lag in the 4th Quarter, but IPO Hype Boils for 2011:

There is a lot of hype swirling that 2011 is going to be the big comeback year for the venture-backed IPO. And we’re talking about big, gaudy IPOs, not small ones that essentially function as another funding round. And interestingly, pundits and investors expect some new $1 billion companies to debut in both cleantech and Internet sectors.

Certainly firms like LinkedIn, Groupon, Facebook, Pandora, and Zynga have raised lots of VC money from investors who would welcome public liquidity.

Private Equity also benefits from IPO window

Venture backed firms — those started from scratch and basically birthed into existence for large splashy IPOs — aren’t the only ones benefiting from the opening of the IPO window for increased investor demand in new offerings. Companies that received funding/buyouts from private equity firms are also gearing up for an exciting 2011.

According to Renaissance Capital

The past year has seen an modest uptick in offerings of companies backed by buyout firms – 37 in total, more than the two previous years combined

Big firms like HCA, TXU, and Harrah’s Entertainment are poised, waiting for the right opening to go public and make their PE-backed investors richer.

But…

It’s not all clear sailing for a couple of reasons

time and money to exit: In spite of the rah-rah of VCs saying how easy and quick it is for companies to prosper in the social media era, the inverse is actually true — successful companies may require more money and time to prepare for public markets. According to TechCrunch’s Lacy, “The venture-backed economy is rapidly becoming polarized between quick flips or a long, hard-fought slogs even for the hottest companies.”
fuzzy pricing for private firms: Investors in pre-public firms frequently talk their books, inflating performance and valuation of their portfolio companies. Without a public mechanism to discover pricing, it’s hard to line up institutional investors for a large offering. The NYT has an article today about energy company, TXU and how pricing analysis by KKR and TPG has differed wildly.
rise of secondary markets: Companies like SharesPost have provided necessarily outlets for founders and investors to cash out. With the ability to take some money off the table and enrich themselves, certain companies would rather persist as private firms without the necessary headaches and scrutiny of running publicly-traded firms. Xpert Financial, recently launched, will play into this dynamic as well. It’s possible that Facebook doesn’t go public for a loooong time.

Performance into 2011

While total IPO numbers still haven’t returned to 2007 levels in the US, performance is best since 2006, as average IPO rose by 23% this year. Renaissance Capital is predicting a big year in small cap tech, consumer, and health care sectors.

Given last year’s result and if we see continued momentum, Asia Pac and Latin America look poised to not only float more new firms but good firms, with nice sized returns.

And this makes sense. Many of the hottest Internet firms continue to find willing and able investors in the venture capital world (and out, as witnessed by Goldman’s interest in Facebook). Other firms that have spent the past few years developing great products and even more interesting business models will tap the markets because they’re ready to grow into being real firms.