A123 Systems (NASDAQ: AONE) scored an opening-day pop of 50.3 percent. The Watertown, Massachusetts-based maker of lithium-ion batteries priced its IPO of 28.2 million shares at $13.50 each on Wednesday evening, Sept. 23, and saw it close its opening day at $20.29 per share.
A123 Systems was formed in 2001. Its financials tell us there’s more to the company than its numbers. Consider this: For the period ending June 30, 2009, A123 Systems reported a 12-month loss of $86.7 million on revenues of $89.5 million and an accumulated deficit of $193.5 million.
Nevertheless, the deal is what is called “a story stock” and it gave the IPO market a new name: “clean tech.”
It was reported that the A123 Systems offering was being closely watched as a “bellwether” by industry insiders and similar competitors. In view of its aftermarket action, it looks as if the “clean-tech” spigot will soon be turned on.
This brings us to the week’s major disappointment.
Shanda Games (NASDAQ: GAME) came to town with all the fanfare of a three-ring circus. By the time the dust settled, it looked more like the fairgrounds after the circus left town. The IPO was priced on Thursday evening at $12.50 a share. On Friday, it opened flat, according to the Nasdaq’s quote system, and the stock closed at $10.75, down 14 percent from its initial offering price. That was the sharpest opening-day loss in over a year.
On Aug. 6, 2008, Rackspace Hosting (NYSE: RAX), a San Antonio-based provider of a range of Web hosting and managed network services for businesses, priced its IPO of 15 million shares at $12.50 a share via the Dutch-auction bidding system. The IPO tanked. Rackspace closed its opening day at $10.01, DOWN 19.9 percent from its offering price. Fast forward to Feb. 5, 2009, Rackspace sank to a low of $4, DOWN 68 percent from its offering price, but the worst was over. On Friday, Sept. 25, Rackspace closed at $17.80, UP 42.4 percent from its offering price.
Now back to GAME, a Shanghai-based provider of online games. The company filed for an IPO to offer 63.5 million at $10.50 to $12.50 each, to raise $730.3 million shares. In the end, GAME raised over $1 billion.
Looking back to Sept. 3, 2009, when GAME filed for its IPO, one could almost see the IPO drum majorette high-stepping down Wall Street to the cheers of the crowd.
After all, wasn’t Shanda Interactive Entertainment (NASDAQ: SNDA), GAME’s parent, UP 508.9 percent from its initial offering price? (On May 11, 2004, Shanda priced its IPO of 13.9 million shares at $10 each and closed at $50.99 on Sept. 3, 2009.)
And wasn’t GAME’s competitor, Changyou.com (NASADQ: CYOU), UP 138.3 percent from its initial offering price? (On April 1, 2009, Changyou.com priced its IPO of 7.5 million shares at $16 each and closed at $38.18 on Sept. 3.)
When GAME’s insiders added another 20 million shares to raise the offering to 83.5 million, it didn’t seem to bother anyone. After all, the deal was being reported as “well oversubscribed.” Looking back, those 20 million shares had to have taken some aftermarket orders off the table.
And then there were the financials.
Changyou.com was trading at $39 per share or 14.6 times its last 12 months’ earnings of $2.66 per share.
If the GAME deal were priced at the mid-point of its $10.50 to $12.50 range, it would be at 17.7 times its last 12-months earnings of 65 cents per share.
Traditionally, bankers like to price their IPOs at a discount of 15 percent to 20 percent below the average stock price of the company’s publicly traded competitors. That being the case, GAME would be going public at a premium rather than at a discount.
No matter what’s been said, the tape told GAME’s story. There were no aftermarket orders. And people bailed out.
Early Autumn Quartet
This brings us to this week’s IPO calendar.
At press time, there were four deals on the IPO calendar. They expect to raise $1.7 billion. Due to the Yom Kippur observance, the pricings will come near week’s end.
Here’s one deal that the IPO handicappers think might do well in the aftermarket.
Education Management (NASDAQ: EDMC – proposed), a Pittsburg-based provider of post-secondary academic programs through campus-based and online instruction, plans to price 20 million shares at $18 to $20 each.
The 47-year-old company is large, with 12-month revenue of over $2 billion and net income of over $100 million.
There are reasons why the IPO handicappers like the deal. The answers can be found by looking at its sub-sector, Google Finance’s Schools industry sector and the performance of the last three companies that have gone public from that realm.
Bridgepoint Education (NYSE: BPI) priced its IPO of 13.5 million shares at $10.50 each on March 13, 2009. On Friday, Sept. 25, Bridgepoint closed at $15.81, UP 50.6 percent from its initial offering price. The stock was trading at 54 times its last 12 months’ EPS of 29 cents.
Grand Canyon Education (NASDAQ: LOPE) priced its IPO of 10.5 million shares at $12 each on Nov. 19, 2008. On Friday, Sept. 25, Grand Canyon closed at $17.05, UP 42 percent from its offering price. The stock was trading at 42.6 times its last 12 months’ EPS of 40 cents.
K2 Learning (NYSE: LRN) priced its IPO of 10.5 million shares at $12 each on Dec. 12, 2007. On Friday, Sept. 25, K2 closed at $16.30, UP 35.8 percent from its offering price. The stock was trading at 37.9 times its last 12 months’ EPS of 43 cents.
Consider this: At the mid-point of its $18- to $20-per-share filing range, Education Management would be pricing the stock at 21.8 times its last 12 months’ EPS of 87 cents.
Nevertheless, its industry -– schools — has been a laggard. From the beginning of the year, Google Finance’s Schools Index was up 1.36 percent versus the S&P 500’s gain of 15.2 percent.
Education Management plans to price its IPO on Thursday night, Oct. 1, to trade on Friday, Oct. 3.
Will it make the grade? Stay tuned.