2018 has seen strong activity in the U.S initial public offering (IPO) market, with the most active second and third quarters since 2014. The third quarter saw the launch of 60 IPOs, which raised around $13.4 billion thanks to bigger IPO prices than the third quarter of 2017. When looking at recent IPO activity, 2014 was undoubtedly the most robust, as 275 IPOs were launched that year. 2015 lagged behind with 170 IPOs, while 2016 saw a meager 106 companies make an IPO. IPOs enjoyed a noteworthy rebound in 2017, with around 170 IPOs, and that figure will rise again this year, in which there have already been 173 IPOs (through the end of September).
Those 173 IPOs generated proceeds of around $45.7 billion, which is 45.5% more than the amount generated in the corresponding period of last year. The third quarter’s IPO returns of 35% were also impressive, trouncing the S&P 500’s return of 7%. One of the sectors that had a crucial impact on this impressive performance was the pharma and life sciences sector, which had a stellar average return of 61%. The next most profitable sectors were the energy, utilities and mining sectors, the latter of which had only one IPO during the quarter, but one that delivered a return of 26%. Out of so many prominent IPOs, we are going to take a look at the five which have attracted the most attention from hedge funds in our database so far.
We track more than 700 hedge funds and other institutional investors in our database and analyze their quarterly 13F filings to identify the stocks that they are collectively bullish on. Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 121% vs. a cumulative gain of 66.6% for the S&P 500 ETF (SPY) (see the details here).
Now, we are going to take a closer look at some of the biggest IPOs that the hedge funds which we track are bullish on.
5. DocuSign (DOCU)
We start with a very interesting company, one which says that the time for digital signatures has come. DocuSign (DOCU) offers electronic signature technology and digital transaction management services, making electronic exchanges of signed documents possible and secure through user identity verification and other features. The company was founded in Seattle and most of its operations are run there, though its headquarters are in San Francisco.
In its second quarterly report since it went public in April, DocuSign disclosed quarterly revenue of $167 million, which was up by 33% year-over-year. Analysts predicted that it would deliver earnings of $0.01 per share during the quarter, but the company managed to earn $0.03 per share. That great performance was courtesy of subscription revenue that grew by 35% year-over-year. At the end of the second quarter, 20 hedge funds in Insider Monkey’s database were long this stock, collectively holding 5.80% of the company’s outstanding shares.