This Is the Hands-Down IPO to Own in 2011

According to PricewaterhouseCoopers, recent IPO data shows that the market for new issues is still on fire. For the third consecutive quarter, IPO proceeds surpassed the $10 billion mark, with proceeds in the second quarter vaulting 129% over the year-ago period. This year also has a decent chance at topping the $39 billion in IPO proceeds from 2010.

Follow the bouncing ball
Investors are more willing than ever to pay top dollar for premium technology names -- yet few of the companies have any real substance behind their enormous valuations. Following are six recent tech IPOs to hit the market. Can you tell which one doesn't belong?

Company

Price/Book

P/E (TTM)

Market Cap / EBITDA (TTM)

RenRen (NYSE: RENN  )

N/M

N/M

68.8

Qihoo 360 Technology (NYSE: QIHU  )

522.2

317.1

N/M

Pandora Media (NYSE: P  )

23.3

N/M

N/M

Yandex (Nasdaq: YNDX  )

31.3

78.6

50.1

LinkedIn (NYSE: LNKD  )

67

1,156.7

251.1

Boingo Wireless (Nasdaq: WIFI  )

N/M

18.2

16

Source: Yahoo! Finance. Ratios as of July 28.

Talk about a potential bubble. Pandora and RenRen aren't even profitable yet, LinkedIn is trading at more than 251 times its EBITDA, and Qihoo is priced at 522 times book value. Yandex, one of the few recent IPOs that is actually profitable, even trades at a premium to book and EBITDA.

For those of you who picked Boingo Wireless as the company that doesn't belong, give yourself a pat on the back. Not only does Boingo have a clear degree of separation from these recent IPOs, but it also has a hidden secret that could earn you a ticket to big returns.

Betting on Wi-Fi
Boingo Wireless had its IPO in early May, and its shares have been on a steady descent ever since. The company provides mobile Wi-Fi Internet hotspots and derives its revenue from recurring subscriptions set up with airports, malls, stadiums, and coffee shops worldwide. Even with worries that smartphones will steal away the need for Wi-Fi, Boingo continues to grow unabated. Full-year revenue has increased from $56.7 million in 2008, and according to company projections, it should bring in between $92 million and $94 million for 2011.

Boingo still has the potential to hit countless untapped resources. Restaurants, airports, and stadiums worldwide could benefit from Boingo's services, and the only thing standing in the way is competition from its larger rivals, AT&T (NYSE: T  ) , Verizon, and Sprint Nextel.

Now for that hidden secret that I promised.

Boingo Wireless is loaded! In its most recent quarterly filing, the company's balance sheet detailed $33.9 million in cash plus investments with minimal debt of $298,000. More importantly, these figures excluded the cash proceeds from the company's recent IPO, where it sold 3.85 million shares at $13.50 per share -- netting the company approximately $52 million. The company has pledged to use the proceeds from its IPO for potential acquisitions and network expansion. In short, Boingo now has more than $85 million in cash, or $2.60 per share, yet trades below $9.

Now here's the catch
Could this be an incredible opportunity? Yes, but there is a catch. Boingo also lists $124 million worth of preferred securities as liabilities on its balance sheet. That means that even with a healthy $2.60 in cash per share, the company's shareholder equity is still negative. In the unlikely case that Boingo goes belly-up, common shareholders would probably be left with nothing.

Luckily for current shareholders, Boingo is decisively profitable on an annual basis and is trading at a reasonable 32 times forward earnings. Having grown revenue annually at 17.5% over the past three years and loaded with $2.60 in cash per share, Boingo is the hands-down IPO to own in 2011.

What's your take on Wi-Fi? Will it thrive in today's market, or will it simply try to survive among tough competition from smartphones? Add Boingo Wireless to your watchlist to keep up on the latest from this cash-rich IPO.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong  Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's a hotspot for investors worldwide.


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  • Report this Comment On December 21, 2011, at 8:36 PM, lgrunner34 wrote:

    I feel investing on it every time it drops below 8.00 and then selling very time it top 9.00 has worked for me so far.

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