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King Digital went sour but IPO market may still be too spicy

It’s been a great year for IPOs. Well, except for yesterday when Candy Crush Saga game-maker King Digital (KING) debuted on the New York Stock Exchange and then fell 16%, making it the worst opening day for any initial public offering so far this year.

Looking past King Digital, the IPO market has been hot. In the first quarter of 2014, U.S. IPOs are up 113% from last year and have raised 36% more capital, according to a report from Ernst & Young.The market is "booming," led by energy, real estate and technology. 2014 is turning out to be even better than 2013 -- which was already the best year for the U.S. IPO market since 2000, according to Renaissance Capital. So what exactly is driving this trend?

Related: Biggest IPOs of 2013

"People like to say the IPO market is a derivative of the stock market and the stock market has done amazingly well, so fund managers looking to outperform the broader market will buy into riskier equities such as IPOs," says Leslie Picker, IPO reporter at Bloomberg News, in the accompanying video. "Investors will pursue IPOs hoping to get that first day-pop -- which we've seen a lot of except for King of course -- and so far it's paid off." 

The recent IPO strength also makes conditions rife for dot-com bubble comparisons. U.S. IPOs have seen their biggest first day gains since 2000. At the same time if you look at the number of IPOs with 100% first day returns, 2013 and 2014 are nowhere near where we were during the dot-com bubble. In addition, 64% of companies that went public last year had no earnings, the most since 2000 when 80% of companies went public without earnings, according to University of Florida IPO academic Jay Ritter.

Related: Are we on the verge of another tech bubble?

Certainly on the face, Picker says there are stark comparisons, citing the first day pops and the trend in tech companies going public. But if you drill down to the companies actually going public now, Picker says they are older and more mature, so you're basing the valuations on actual cash flow and not just on eye balls and clicks.

"We are most likely in some kind of bubble," says Picker. But whether it's comparable to 1996, 1998, or 1999, "it's difficult to say." 

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