Virgin America files for IPO. A good time to go public?

Virgin America's next destination is Wall Street.

The California-based airline filed on Monday for an initial public offering of shares.

Virgin America Inc., which operates out of Los Angeles and San Francisco, flies to 22 airports in the United States and Mexico and has a fleet of 53 planes. It is known for offering a variety of perks on its jets, including live TV, movies, leather seats and purple mood lighting.

The company, which was founded in 2004, licenses the Virgin brand name from the Virgin Group, founded by businessman Sir Richard Branson. The Virgin Group's parent company, VX Holdings, has a 22.1 percent stake in Virgin America, the company said it in its filing.

Virgin America posted its first annual profit last year, earning $10.1 million. It had revenue of $1.42 billion in 2013, up 6.9 percent from $1.33 billion the year before.

For the purpose of the filing with the Securities and Exchange Commission, the company said it could raise as much as $115 million, but that number is likely to change.

The company, which has its headquarters in Burlingame, California, did not say when it expects the IPO to happen, how many shares it plans to offer, how much each share will cost or which exchange they will trade on.

Virgin America's announcement makes it one of many companies that are finding 2014 a good time to take the IPO plunge. The Monitor's Schuyler Velasco wrote on the 2014 IPO boom in May: 

A larger-than-usual swell of IPOs hit US stock exchanges in 2013 and in the early part of 2014: A total of 222 companies went public in 2013, raising about $55 billion along the way – and 2014 brought more than 50 IPOs by the end of March, raising about $8.5 billion. Those IPOs are performing beyond expectations.

The average "first day pop" or price increase for an IPO in 2014 has been 22 percent, well above the typical 13 to 15 percent, according to Renaissance Capital, an IPO consulting firm based in Greenwich, Conn.

Recent IPO activity has been "the highest we had seen since the Internet bubble of 1999-2000," Kathleen Smith, an investment adviser with Renaissance Capital, writes via e-mail.

 Why the surge?

"The market has become more receptive to IPOs at a younger age," says David Joy, a Boston-based market adviser for Ameriprise Financial, a national investment firm. "Years ago, you wanted to see several years of profitability before you were comfortable. That hurdle seems to [have been] lowered, and now investors are more willing to say 'you can price this off growth potential and revenue instead of actual earnings.' It's riskier, but for tech companies, the pace of innovation seems to be happening more quickly, and investing in the right ones can be far more rewarding."

Indeed, the flashiest names in the IPO wave have come from the consumer tech sector: Social networking site Twitter went public with a bang last fall, closing 73 percent above its opening stock price. Less successfully, King Digital, maker of the popular mobile game Candy Crush Saga, launched its IPO in late March, and GrubHub, a food-delivery website, launched in early April. But the surge in activity has come from a broad range of industries, including health care, biotech, energy, and the financial sector.

A few established, very well-known names are expected to launch IPOs in the remainder of 2014, including Chrysler (now owned by Italian automaker FIAT), air carrier Virgin America, and clothing retailer J.Crew.

Some of this is a symptom of the stock market itself, which went on a tear in 2013 and had its best year since 1997. As the market has begun to pull back a bit in recent weeks, the IPO calendar, too, has started to become less crowded, stoking fears of a 1990s-style tech-bubble bust.

Ms. Smith and Mr. Joy, however, aren't particularly worried about that. The current IPO surge, Smith notes, is "still half the levels of 1999-2000, which had 400 to 500 IPOs raising about $100 billion in each year." She calls the recent softening "a necessary correction that many had been looking for after such a strong sustained rally. "

A more sober analysis

"Back in the late '90s you just needed 'dot-com' in your name" to raise money to go public, Joy says. "[T]here was a belief that 'earnings don't matter, eyeballs do' – [that] all you had to do was visually attract traffic to your website. But you had to have a product that could be monetized, and people overlooked that. Now a much more sober analysis takes place."

So, should individual investors jump headfirst into the IPO market? Maybe not quite yet. Newly public companies are still the most volatile sector of the public-equity market, and huge hits are historically rarer than total busts. If you do decide to invest in IPOs, a portfolio approach combining safer bets like energy companies with higher-risk, but higher-reward sectors like biotech and consumer technology, is highly recommended. A diverse IPO portfolio can "help minimize volatility while capturing ownership of future market leaders," Smith says.

"Try and understand the space in which they're competing," Joy suggests. "Are they competitive? Is the valuation realistic long term? Can they generate enough earnings to justify pricing?"

"For an average investor, use only a small portion of your portfolio [on IPOs]," he says. "These are high-growth companies with high valuations. If it works out great, and if it isn't, you're not terribly harmed by it."