After a strong week – where the Dow rose every day — the U.S. markets are falling into another funk on Monday. The main culprit is the debt crisis in Europe: It now looks like Greece will default, which may destabilize other weak economies like Italy and Spain.
Is it any wonder that the IPO market is having problems? The last offering was over a month ago, and there are literally no deals on the current calendar.
Perhaps the most troubling issue, however, is the overall performance of IPOs this year — the average deal has returned a miserable -7.2%. This is the worst run since the dot-com implosion.
Then again, we’ve seen a variety of duds. Some include companies like Pandora (NYSE:P) and Demand Media (NYSE:DMD). At the same time, there are major concerns about upcoming IPOs like Groupon, which is losing huge amounts of money and must deal with many rivals.
Kind of bleak, huh? This is really a matter of the intense market gyrations — it’s to be expected.
And of course, there are still winners. Look at LinkedIn (NYSE:LNKD), which is the dominant player in the professional social networking market. The company continues to grow at a torrid pace and was even able to post a profit in its latest quarter.
Or consider HomeAway (Nasdaq:AWAY), which operates a marketplace for vacation rentals. In the second quarter, the company posted a 41% increase in sales and a net profit of $2.2 million. If anything, HomeAway seems to be recession-resistant, as property owners want to find ways to boost revenue, and vacationers want more affordable options.
The good news is that we should still see some worthy deals in the future. For example, it looks like Zynga will still have its IPO this year. That company is at the leading edge of online gaming and should generate about $1 billion in revenue.
There are also non-tech operators that look enticing, such as Restoration Hardware. Over the past few years, the company has transformed itself into a high-end retailer of furnishings. As a result, comparable-sales growth is at about 17%.
It’s easy to get pessimistic, but there should be some good opportunities for investors. It will probably require some patience as well as the stomach to deal with the inevitable volatility.