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What You Should Know About IPOs

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

 

IPO means initial public offering. Any company that wants to grow its business must decide on its financing method, sooner or later. There are a few options to do that. The first one is taking a loan in a bank. The second one is finding an investor that would give some funds upon their own conditions. Finally, another method is finding multiple investors that would finance the company, which in exchange would require making the business and financial information of the company public. This is exactly what is called an IPO.

In fact, the company sells a part of it as shares in a stock exchange, and the more investors buy shares, the more funds can be raised. The shareholders will then be able to get dividends, i.e. a fraction of the company’s profit. Not all companies are, however, ready for this: for example, Facebook does not pay dividends, the only source of income for investors being rising share prices. Some companies cannot afford not paying dividends, as it may become less attractive for investment. Apple, on the contrary, pays the highest dividends in the world: in the first half of 2018 shareholders got $13.22 billionin dividends. Facebook will start making dividend payments, too, but obviously when the price is going down and there are no other ways to support it.

Thus, investors have two options to earn money here: with the price going up (to capitalize on this, the company in question must be fast-growing and have very good potential) and with dividends. Ideally, an investor should leverage both options whenever possible.

In order to run an IPO, the company must find an expert who will be able to raise as much funds as possible. Of course, it may act on its own, but in this case chances are that the funds raised will not be even enough to cover the IPO running costs. The professionals that run IPOs are called underwriters, and are usually banks and/or insurance companies.

How Do Underwriters Earn?

Underwriters finance IPOs and get shares at a price that is considerably lower than IPO. This is how they earn. To make more money, underwriters will make every effort for the IPO to be successful and attract as many investors as possible. Many of them run road shows, i.e. ad campaigns for attracting investors.

Road shows include meetings with potential investors and analysts in countries with key financial centers, such as the UK, Germany, the US, or China. Before that, a presentation on the company’s business, financial background, and outlook is created. The company’s management then comes to visit potential investors where they show this presentation. Media and press coverage of the upcoming IPO is also very important, as it helps drive more attention to the company once it get listed on an exchange.

During road shows, large-scale investors can buy shares even before the IPO. Underwriters accept such bids, but often with a high entry only, like a few millions of dollars. If you have just a few dozens of thousands, you are unlikely to be able to buy shares directly from the underwriter. However, there are tricks that may allow you to take part in the IPO even before the latter actually occurs.

As mentioned above, road shows are often covered in media in order to increasedemand. During such campaigns, some intermediary companies form a pool consisting of may lesser bids and send the overall bid to the underwriter. In theory, this works fine, but in practice underwriters seldom answer such bids.

The first thing you need to pay attention to before the company’s IPO is the underwriter: the more famous and trusted it is, the more likely the IPO will be successful.

If the company itself is a promising one, underwriters will be competing for the right to run its IPO, and the company will have a chance to choose from a list of very reputable underwriters, such as Morgan Stanley, Citigroup, or Goldman Sachs. Choosing two or more underwriters at a time is also possible.

The results of the road show determine the share price, and it is quite important not to make this price too high at the start. This very thing happened to Facebook, whose underwriter was Morgan Stanley. Interest in Facebook’s IPO was extremely high, and while the starting price was first set at $17, Morgan Stanley decided to make it higher a few weeks before the event, as well as to increase the number of shares issued (out of mere greed), which then led to the share price falling on IPO day. Overall, Facebooklost 21% during the first week.

After the company finds its underwriter, it also has to determine which exchange to use for the IPO. Again, if its a promising company, the exchanges will be competing for it, too, as more successful public companies mean more liquidity, volume, and commission earnings.

When the exchange is found, too, the very trading process finally starts. On the first trading day, increased volatility is a common thing. In order to maintain high interest towards the IPO, underwriters tend to a bit underrate the shares, so that the price may go up at the moment of the IPO.

During the IPO,  insiders, i.e. those early buyers who got shares before they went to the public, may not sell any shares; you can’t earn anything by going short, too, as during the IPO short positions without coverage are forbidden. This way, the traders may either buy shares or do nothing.

The period during which insiders are not allowed to sell shares is called lockup and lasts from 90 to 180 days. The exact time line is determined by the company, and the terms are negotiable. This is all very important for the company, as shortly after the IPO a very low fraction of shares is sold out, while the major stake is held by those who but them before the IPO; if they sell at once, the supply may increase a few times, which could lead to a sharp price decrease and panic among investors.

The lockup is lifted gradually, where the shareholders may start selling their shares in order to stimulate volumes, which leads to temporary falls by 1% or 2%. Lockup dates and time lines are detailed in the S1 online form which is sent to the Securities and Exchange Commission (SEC) every day.

Those who want to capitalize on the IPO on the same day have to pay attention to some factors that will show whether such IPO will be successful. Remember: no short positions during the IPO, so if you want to trade, you will have to buy.

The first thing you must pay attention to, whether you are investing in the short term or in the long term, is the underwriter: the more famous and popular it is, the more likely that shares will go up after the IPO.

The second thing is the percentage of shares offered during the IPO. If it is too large, this may influence the share prices negatively, especially considering that those who bought shares before the IPO will be also selling them at some point. Conversely, small percentage usually makes the price go up, although you should pay attention to a number of factors, not just this one.

Third, there is a price range defined before the IPO: the wider it is, the more in-demand will be the shares once trading starts. Then, you should watch the open price: if it is near the high of the range or goes even beyond, this will show the demand is quite high, and may lead to the price rise both intraday and in the midterm, when the lockup period is over.

However, there are volatility risks, too: when the price opens higher than the pre-defined range, the price rise may last for a very short time, after which the price will return within the range again. After this happens, a good support level may form, which may later be used as an entry point. Conversely, if the price opens lower than the range, this means the demand is low, and the shares may lose even more going forward.

The number of employees is quite important, too. Some IPOs are run with three employees in the company; of course, this is dangerous: they just want to raise funds, and don’t care about what will happen next. This has happened in cryptocurrencies lately, where each one with appropriate skills and equity was able to create their own crypto and start trading it.

IPO Explained: Opera Limited

Opera Limited, the owner of the famous Opera web browser, ran its IPO on June 27, 2018.

  • 6M of shares were offered after the IPO, while 60M went to some retail investors before; thus, over 15% of shares went to the market.
  • The number of employees in the company exceeds 800 people.
  • There were two underwriters: Citigroup and China International Capital Corporation Limited, one of the leading investment firms in China.
  • The range was between $10 and $12.

Upon the market opening, the price exceeded the range by nearly 15%, making it $14.33, while at some point it even went to $15.50 and above. This shows investors are highly interested in the company, which is a good signal for long term investmemt. With high volatility pressure, the price went below $12.00, but then got support and went up again.

Currently, Opera shares are trading withing the range set up before the IPO. Once the lockup is over and $12 gets broken out, the price may start uptrending steadily.

opera IPO

In the midterm, there is only one risk for Opera shares: the trade war between the US and China, which may lead to a massive fall in the stock market, and in Opera Limited shares in particular. Many analysts say trade war issue may get escalated this fall, so such risks should be taken into account at once.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 26 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Altcoins

Lite.IM Surpasses Facebook In Race To Support Cryptocurrency Compatible Messenger

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Since the early part of 2018, crypto traders have been bombarded with bad news.  Hacks, broken promises, and overall lack of enthusiasm have resulted in huge losses.  But more than that, some promising cryptocurrencies just haven’t survived.  As traders look to the future, they should begin looking at projects that have the potential to disrupt industries and take them to the next level.  One company that has the potential to accomplish that is Zulu Republic (ZTX).

Zulu Republic is an ecosystem of blockchain tools and platforms, designed as a place where people, businesses, and organizations can thrive on their own terms.  The company’s stated mission is to advance the development of decentralized technologies, to promote human rights and empowerment around the globe, and to reduce the global digital divide.

Well the company is off to a great start with the development of Lite.IM.

What is Lite.IM? 

Lite.IM is a project aimed at expanding global cryptocurrency adoption.  With Lite.IM, users can send, receive, and manage Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), and the company’s native currency (ZTX), on Facebook Messenger, Telegram, and SMS (in the USA and Canada).  To get started managing these cryptocurrencies on the aforementioned platforms, users simply need to send a text-based command to the Lite.IM bot.  The commands are as follows:

Telegram:  @LiteIM_bot

Facebook Messenger:  @lite.im

SMS (USA and Canada only):  760-LITEIM-0

Competition with Facebook

On December 21st, 2018, Facebook announced that it was developing its own stable cryptocurrency that users would be allowed to exchange through its popular chat service, WhatsApp.  But while Facebook’s initial approach will target users based in India, Lite.IM is open to everyone in the world.  Further, Zulu Republic has previously mentioned that they expect to announce support for WhatsApp in the next few weeks.  It certainly appears as though Lite.IM has the upper hand here.  And that is before even addressing Facebook’s obvious privacy concerns.

When it comes to cryptocurrency, privacy and security have always been two issues at the forefront.  Given the rough year that Facebook has had in that regard, users must certainly be forgiven if they have trouble trusting the social media giant.  In September, 2018, Facebook announced that an attack on its computer network had exposed the personal information of nearly 50 million users.  Apparently, the hackers were able to exploit a feature in Facebook’s code to gain access to user accounts.  Even prior to this announcement, Facebook was already under Congressional scrutiny over revelations that a British analytics firm obtained access to private information from nearly 87 million Facebook users.  Not to mention Facebook’s rumored involvement with Russian election meddling.  Suffice it to say, it has been a tumultuous year for Facebook.

And while users may have concerns trusting Facebook’s ability to handle cryptocurrency data, they shouldn’t have those same concerns with Lite.IM.  Private keys are RSA encrypted with the user’s password.  Lite.IM will never ask for that information nor will it be stored.  Because of this, no third party will ever have access to that valuable information.

Conclusion

The truth of the matter is that Facebook is an absolute giant and has grown at an extraordinary rate since its initial public offering.  Facebook has hired some incredible talent, from executive positions to marketing to development.  And while one should never count them out, I simply wouldn’t be able to trust them with all of the recent issues.  Perhaps in time, after regaining the public’s trust, users could once again look to Facebook as a leader.

Fortunately, users have another strong and dependable option.  Lite.IM will allow users all over the world to manage popular cryptocurrencies via their favorite messenger platform.  Users should continue to stay tuned for future developments.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

Product Owner Interview – GShare Has Potential To Increase Adoption Of MobileGo (MGO) Tokens

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In early December, I wrote an article on why investors should be paying attention to MobileGo (MGO).  Exploding popularity of the gaming industry and an impressive partnership agreement with Xsolla led to a surge in MGO’s token price.  In addition, the team of MobileGo created an application, called GShare, that has the potential to significantly increase MGO token adoption.

What is GShare?

GShare essentially allows users to rent the power of their computers to earn virtual coins.  These coins can then be redeemed later for several gaming options including tournament entry fees.  Through this platform, a user can control the amount of computer resources that are used throughout the process.

Although GShare is currently only at the public beta testing stage, virtual coins can still be earned by making purchases for Xsolla products.  But, according to Igor (the product owner of the GShare app), the goals are much more global than just Xsolla.  Fortunately, I was able to land an interview with Igor and asked him about the goals, benefits and upcoming upgrades of the project.

Interview

What is the mission and vision of the project?

Igor:  Ok, the mission and vision are basically to enable anyone, with the focus group being gamers, to easily obtain free stuff.  For example, for simply sharing their time and computing power, users can come away with games, in-game items, and eSports tournament tickets for free.

What is the advantage of this application as compared to other earning tools in the gaming industry?

Igor:  The main advantage is simplicity.  Thanks to the partnership with Xsolla, another important advantage is being able to use the virtual currency to buy games and make in-game purchases.  In the future, I expect that users will be able to earn items directly within the application.  While there are other programs available in the market that allow users to earn virtual currencies, typically users must spend a long time, sometimes up to a year, to earn enough virtual currency to purchase a basic product like a keyboard.

The general idea of GN Gold (GShare currency) is that we will eventually have an entire ecosystem that will support it.  In the future, we fully expect there to be a deep integration between game publishers and being able to use GShare directly to get different items – this is the first step to earing free items outside of the games.   We hope to separate ourselves from competitors by forming more direct integration with the games themselves.

What is the actual development status?  As far I know it’s still in beta test mode.

Igor:  Yes, we can say it is a public beta test.  But it is available.  Anyone who registers in GShare can download and use it.  The test mode is available for the first 500-1000 users of the platform.  This will help our team to identify and fix the bugs.  At present, our internal version is 0.9.17.

If I remember correctly, there was a recent upgrade.  Is that accurate?

Igor:  Yes, it actually happened a few days ago.  Next week, we plan to upgrade the version by adding additional languages including English, Russian, Chinese and Korean.  After that, the plan is to add Spanish and Japanese in the near future.

Are there any other upgrades you are expecting soon, perhaps in the next couple of months?

Igor:  I think that the first noticeable change will be some type of boosting feature.  After performing certain actions or tasks, users will see an increase in their GShare Gold earning rate.  An example of a boost might include increased earning power for two hours.  We expect to begin working on this feature on Monday although I don’t expect it to be completed until February at the earliest.

How is GShare currently interconnected with other products?  Are there any upcoming changes in this respect?

Igor:  Right now, there are no direct connections except that a user can spend GShare Gold on the competitive platform.  A user’s GShare Gold is used as a participation fee.  If a gamer wins a tournament, they will have the option to receive their prize in either MGO tokens or GShare Gold currency.

As far as I know, both products (the earning app and competitive platform), use the same username and password.  Is that true?

Igor:  Yes, they do.  All products of the ecosystem will be easily accessed via a single user profile.  So, we will focus mostly on integrating with games and allowing game-publishers to integrate with us.  In this way, users can directly spend GShare Gold within the games or use the currency to get items directly.

Okay, are there any technical requirements before someone can run the GShare App?

Igor:  I wouldn’t say there are any specific requirements.  Since gaming already requires significant computing power, it’s fair to say that most gamers will already have the necessary hardware to run the app.

I just want to clarify one thing.  As I understood it, the eSports platform is now used mainly for casual games?

Igor:  Yes.  The eSports platform now targets casual gamers while GShare is targeting more of a core gamer audience.

What are the limitations and how can someone know whether they should use GShare?

Igor:  At the moment, that’s a very difficult question to answer given that we’ve only just launched the beta.  During this test period, we hope to learn more about whether an average gaming machine with an average GPU will be enough to earn users some profit.  Although I can say that even laptops with just CPU are able to earn something right now.  It’s also important to remember that the boosting feature, in which development will begin shortly, will play a pivotal role here.

What are the future goals for GShare?

Igor:  For me, the goals are like most other technology businesses – stability and scalability of the application.  Certainly, we hope to make the experience as pleasurable for the users as possible.  Avoiding bad experiences, like application crashes, are of paramount importance.

Some of the team will be working constantly on improving the algorithms, stability and scalability, fixing bugs, and making small fixes in the background.  In the near term, the priority is certainly to finish earning item features, testing it, and getting as many game publishers as possible.  The boosting feature is also very important.

Does GShare have the potential to change the gaming industry in the long-term?

Igor:  Well, the company’s long-term goal is to do good things.  We hope that all these products and GShare will be able to support the community and create strong social values.  Users can choose to interact within the framework of a thematic platform.  An example of that would focus on how a gamer’s view is changing.  This is not just about gaming but allowing people to use their computer for many things while not having to make any effort to go outside.

…. and what’s the scope of the project?

Igor:  Well, for me personally, the scope is to provide as much profit for users as possible.  It would be great if people could run the application overnight while earning a few dollars.  That would really be something.

What are you doing to increase awareness of the GShare Application?

Igor:  Our team is working on that right now.  In January, we expect to begin introducing the app to the Chinese and Korean markets.  In addition, we are negotiating with partners.  Word of mouth among gamers will also play a big role.  That, of course, will depend on the quality and success of the beta.

This will be my final question.  What role do you play in this project?

Igor:  Well, when I came to the company, they wanted me to lead the core.  Prior to joining, I was a product manager for the core team in my previous role.  The previous role afforded me a lot of experience but, for me, it had become a bit tiresome and uninteresting.  It was really about the things that the ordinary user doesn’t see, and I was dealing with all the back-end.

This project is different.  It sounds like “Oh, we haven’t go these” – now you do!  Right now, I’m trying to figure out ways to give the end users as many benefits as possible.  I spend a lot of my time ensuring a good user experience.

Chris:  Igor, thanks so much for taking the time to give me an interview.

Igor:  You’re welcome.  Feel free to contact me anytime if you have more questions.

Although GShare is still in the initial stage of development, the potential is certainly there for a bright and meaningful relationship between gamers and publishers.  As awareness increases, there is a strong possibility that adoption of MobileGo (MGO) tokens will also increase.

Disclosure:  Chris is long MGO tokens.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Altcoins

Waves Continues Surge During Bear Market

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Although the overall crypto market continues to be extremely bearish, there have been a few reasons for traders to smile.  The main reason for encouragement is the recent spike in Bitcoin’s (BTC) value.  Bitcoin has increased roughly 28% since December 17th.  Given that Bitcoin was recently in danger of dropping below the much feared 3,000 level, traders will gladly take the early Christmas present of 4,000+.  It’s still unclear if the bulls have returned or if this is simply a dead cat bounce.  Either way, it’s an encouraging sign for the overall crypto market.

New Mobile App Announcement

While altcoins generally haven’t participated in the recent Bitcoin rally, one coin that continues to defy expectations is WAVES.  WAVES is a decentralized blockchain platform focusing on custom blockchain token operations.  National currencies transfer is maintained on the Waves blockchain trough compliant gateway operators.

Waves has had an incredible month driven primarily by extremely positive developments on the technology front.  In early December, Waves announced a comprehensive, all-in-one app for mobile devices.  This app includes a one-of-a-kind feature set that includes a crypto wallet, the Waves DEX, and a FIAT gateway.  This development certainly sets Waves apart from its closest competitors.

One of the biggest issues among all crypto users is privacy.  Privacy is so important that it has spurred the growth of several privacy focused coins such as Monero (XMR) and Zcash (ZEC).  This new mobile app has addressed privacy concerns by encrypting all traffic.  This means that the keys never leave one’s smartphone, are never exposed to the web, and are stored locally.  The app also does a nice job of supporting additional security measures such as Face ID, Touch ID and Fingerprint scanning.  Taken all-together, mobile app users can rest easy knowing their data is secure.

Waves is also known for having one of, if not the fastest, decentralized digital asset exchange in the world.  The primary advantages of DEX include the following:

  • Decentralized and anonymous
  • Unlimited crypto withdrawals
  • Thousands of pair trading options
  • Transaction settlements completed within seconds
  • Available on any device
  • Fees less than $0.01
  • Average 24h volume of more than $6.3 million

Given the popularity of DEX, it makes complete sense for mobile users to now have access to it.  This includes all the same tools and charts that desktop users have access to.  Any way you slice it, this is a huge development for the Waves platform.

December Price Surge

Although most coins are having a December to forget, Waves is having a December to remember.  Waves was trading at $1.24 to start the month but has more than tripled in price since.  The coin is now trading at $3.88 as of this writing.

While that kind of return was common in 2017, it’s the kind of return that gives hope to many crypto traders that the good old days can return once again.

The chart clearly shows that the coin surged immediately after the announcement.  While a price rise isn’t terribly uncommon after a press release, the follow through is.  Waves has continued its surge through the entire month of December.

Christmas certainly came early for Waves hodlers.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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