Which to Invest In, Which to Avoid

What do Twitter, Dropbox, Chrysler and Kodak all have in common? They have been preparing to launch initial public offerings (IPOs) of their stocks.

If you’re an investor, should you care?

IPOs can provide tremendous opportunities to get in on the ground floor of a blockbuster investment. But they also can turn into painful disappointments. Sometimes they do both, depending on your timing. And whatever the eventual outcome, they tend to deliver an exciting ride. In September, shares of three tech companies—Rocket Fuel Inc., FireEye and Benefitfocus Inc.—more than doubled during their first day of trading. Last year, Facebook plunged in its first day of trading, but it has since rebounded and shot past its debut price.

Noted stock picker Hilary Kramer says it’s often smarter to follow a new stock for a few quarters before you buy shares rather than getting caught up in the frenzy of its first-day trading. ­Bottom Line/Personal asked Kramer to evaluate the long-term prospects for some of the most anticipated IPOs ahead…

AIRBNB

This five-year-old company has created an online marketplace that allows ­people to list and rent out rooms in their homes to travelers in 190 countries. For 2014, analysts expect it to book more than 120 million guest nights and collect $1.35 billion in revenue.

Kramer’s verdict: Avoid. This “virtual hotel chain” faces serious and well-­financed competition, including ­Orbitz and Expedia. In addition, Airbnb is dealing with regulatory scrutiny in high-profile cities such as New York, where the state attorney general has subpoenaed Airbnb records in an investigation of possible violations of the law governing short-term apartment rentals.

CHRYSLER GROUP

The iconic Detroit automaker has made a stunning comeback more than four years after it filed for bankruptcy, received a federal bailout and came under partial control of Italian carmaker Fiat. But its IPO filing is under a cloud. The ­United Auto Workers union has pushed for the IPO, while Fiat has resisted it, preferring to merge Fiat and Chrysler.

Kramer’s verdict: Avoid. Only a portion of the company’s shares would trade publicly if this messy IPO takes place. Fiat would retain majority control, and it may or may not do what is in the best interest of shareholders.

DROPBOX

This six-year-old “cloud storage” company lets you keep your digital photos, documents, videos and other information securely online. Its “freemium” model provides two ­gigabytes of storage for free, then tiers up to larger and more expensive plans. Dropbox, which generated an estimated $500 million in revenue last year, maintains a big head start on other file-­storage players such as Google Drive and Apple iCloud. It has more users (200 million) and benefits from its focus on business customers who need particularly large amounts of storage.

Kramer’s verdict: Invest. Even if Dropbox’s growth slows, there is so much room for expansion in this nascent industry that Dropbox still can be wildly successful.

EVENTBRITE

This seven-year-old online company provides event-management and ticketing services for about 60,000 event organizers each month. Eventbrite grossed $600 million in ticket sales last year.

Kramer’s verdict: Invest. Eventbrite and its main rival, Live Nation (through Live Nation’s TicketMaster subsidiary), dominate the online ticketing business. But Eventbrite has been able to grow revenues by 40% or more a year by carving out a niche servicing smaller events such as professional gatherings and music and film festivals in 179 countries.

KODAK

The slimmed-down Kodak that emerged from bankruptcy in September is a far cry from the blue-chip corporation of old. Most of its products and patents were auctioned off, and ­Kodak now focuses on high-speed digital printing, from which it expects to have $2.5 billion in revenue this year.

Kramer’s verdict: Avoid. I’m skeptical that its management—the same ­executives who failed to capitalize on the tectonic shift to digital imaging—can deliver on new technological innovations in a very congested sector that includes competitors such as Xerox, Hewlett-Packard and Canon.

PALANTIR SOFTWARE

Palantir’s data-mining and analysis software allows organizations to sort and organize massive amounts of information, including documents, videos and other communications that cross computer servers and e-mail in-boxes each day. The nine-year-old company has been controversial because it was partly funded with seed money from the CIA’s not-for-profit venture capital firm, ­In-Q-Tel, and has a roster of 200 clients that include government intelligence agencies and financial ­institutions.

Kramer’s verdict: Avoid. The company sits at the epicenter of the privacy debate that exploded when the National Security Agency’s “spying activities” came to light. I’m afraid that future lawsuits and public disapproval could hurt the stock’s share price.

SQUARE

This four-year-old mobile-payment company enables even tiny businesses to accept credit cards for payment on mobile devices. A seller just plugs a Square adaptor into a smartphone, tablet or laptop computer and then swipes the buyer’s plastic. Square has about 3 million customers and will earn a 2.75% slice of the $15 billion in transactions it expects to process this year.

Kramer’s verdict: Invest. The company’s superior technology and savvy deal-making have helped it trump larger competitors such as PayPal and Visa.

TWITTER

The first tweet was sent in March 2006. Now more than 230 million monthly users exchange 500 million tweets a day. Twitter’s planned $1.75 billion IPO has created the biggest buzz this year because it has become the go-to service for headlines about finance, politics and entertainment. Like Facebook, Twitter has figured out a clever way to monetize all those eyeballs through advertising, which will bring in more than $300 million in revenue this year.

Kramer’s verdict: Invest. Although I expect Twitter’s stock to be hyper-volatile like other social-media stocks, its international expansion and lack of a significant competitor offering microblogging services could drive double-digit annual revenue growth for the next decade.

UNIVISION COMMUNICATIONS

This owner of several cable networks is the largest Spanish-language broadcaster in the US, attracting 9 million viewers daily.

Kramer’s verdict: Invest. Univision could continue to grow its revenues by 20% a year because it is tapping into a powerful demographic shift in the US. One in six Americans now are Hispanic, and over the next 25 years, that could rise to one in four.