Groupon Inc.'s successful trading debut on Friday eases the way for bankers to bring more companies public in the coming weeks, and the calendar is indeed filling up with deals, but most aren't going to grab investors' interest at the same level.
Groupon's stock rose 31% to $26.11 Friday on the Nasdaq after the daily-deals company increased both its price and the amount of stock it sold in its initial public offering, the first IPO to make a gain after boosting its valuation since July. Market observers said a good performance was necessary to improve confidence among IPO investors.
Groupon's successful debut Friday eases the way for more IPOs in coming weeks and the calendar is indeed filling up with deals, but most aren't going to wow investors, Shira Ovide tells Digits.
David Schwartz, co-chair of the emerging-companies and venture-capital group with the law firm of Michelman & Robinson in New York said .
"I think it was very important that this offering be successful. This was needed with all the gloomand doom that is going around."
But that doesn't mean Groupon's shine will carry over to every IPO ahead; investors remain selective about which new stocks they are willing to bet on. That was made clear on Friday, when another offering, for fertilizer company Rentech Nitrogen Partners LP, declined on its first day of trading after pricing at the midpoint of its expected range.
Carter Mack, president and co-founder of investment bank JMP Group, which wasn't an underwriter on Groupon or Rentech Nitrogen says.
"People are really focused on Groupon now, which can be helpful publicity for the IPO market. But investors will be looking for good performance from a broader group of IPOs than just Groupon in the weeks ahead."
On the calendar now are nine IPOs that have set their pricing terms and started readying for investor presentations. All are seeking to raise less than $200 million. None has the buzz that Groupon generated. They include two early stage biopharmaceutical companies without any product revenue; an energy partnership with declining revenue; and an unprofitable online retailer that targets low- and middle-income consumers with subprime credit scores.
Of the group, only two are drawing some interest:
- Iperva Inc. is a data-security software company, which is aiming to launch Wednesday on the New York Stock Exchange under the symbol IMPV. Imperva has never been profitable, but its customer base includes some of the top five companies in the telecom, U.S. commercial-banking and financial-data-service sectors, and it has decent top-line growth, with revenue in the first nine months of 2011 up 43% from the same period a year earlier, to $55 million
- Angie's List Inc., is a local-business-ratings website, which is scheduled to begin trading Nov. 17 on the Nasdaq under the symbol ANGI. Angie's List, while also unprofitable, is a recognizable consumer Internet brand, and its nine-month revenue was up 46% to $63 million.
Investors' focus could change swiftly if online game developer Zynga Inc. gets around to filing its IPO terms and kicking off a "roadshow" of investor meetings. That would be considered a prime deal, and it is widely expected to launch before the end of the year. But so far the company hasn't taken the final leap that would put it firmly on buyers' calendars.
Zynga CEO Mark Pincus
COMMENTARY: The last time I looked, about 40% of the over 200+ startups that had filed for an IPO after the highly successful LinkedIn (NYSE:LNKD) IPO on May 19, 2011, had cancelled or delayed their IPO due to the volatility in the stock market, federal deficit, slow economic recovery and sovereign debt problems in the Eurozone.
The only other IPO's worth noting was Dunkin Donuts (NASDAQ:DNKN) which ended its IPO trading day at $27.85 on July 27, 2011, hit a peak of $26.99, and is currently trading at $26.90. Russian search engine giant Yandex NV (NASDAQ:YNDX) had its IPO on May 24, 2011 and ended its first day of trading at $38.84. YNDX peaked at $38.51 on July 27, 2011, but is currently trading at $27.58.
In a blog article dated July 1, 2011, I commented on Zynga's IPO filing hoping to raise $1 billion at a $15-$20 billion valuation. It should be worth nothing that several internet analysts had estimated Zynga's revenues for 2009 and 2010 to be $280 and $850 million respectively. According to Zynga's preliminary prospectus, the actual revenues were $121.5 million and $597.5 million respectively. Zynga also reported that revenues for the quarter ending March 31, 2011 were $235.4 million, putting it on track to do at least $1 billion.
I criticized Zynga founder and CEO Mark Pincus for lying about Zynga's profitability for the year 2009 in which he claimed Zynga had been profitable for four straight quarters. Zynga's profits for the years 2009 and 2010 were ($52.8) million loss and $27.9 million profit respectively. So, in essence we have another startup that hasn't made a profit yet. On September 22, 2011, Zynga filed its Q2 2011 earnings report with the SEC and reported that its pre-tax earnings had dropped 90% from the prior quarter. The latter may provide a hint as to why Zynga has not acted on its IPO filing.
The verdict is still out on Groupon (NASDAQ:GRPN). I noticed they lost $1.07 today, ending the trading day at $24.90.
Courtesy of an article dated November 8, 2011 appearing in The Wall Street Journal
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