During the early to mid-1800s, legendary mountain men roamed the North American Rockies. They watched nature’s signs for guidance. A hoot of an owl, the rustle of leaves, clouds passing over the moon told them something.
Deciphering today’s IPO market is much the same.
Message from the Market
The economic news has been better than expected, not unusual when a U.S president stands for re-election.
The stock market blew off the financial news out of Europe. At Friday’s close, Feb. 24, the Dow Jones Industrial Average was up 98.3 percent from March 9, 2009, when it hit its recent closing low, but still down .8 percent from Oct. 9, 2007, the date of its closing all-time high. The S&P 500 Index was up 101.9 percent from March 9, 2009, when it touched its recent closing low, but still down 12.7 percent from Oct. 9, 2007, when it closed at an all-time high. And the Nasdaq Composite Index was up 133.6 percent from March 9, 2009, when it reached its recent closing low, but still down 41.3 percent from March 10, 2000, the date of its closing all-time high. With this in mind, it looks like the stock market might have more wiggle room on the upside. It is not barreling into unchartered highs.
All About Earnings
Wall Street is in the final lap of “earnings season” as companies are reporting 2011 year-end results. This is significant because more than 200 companies are in registration to go public – or “the IPO pipeline” according to Wall Street jargon – and not all of them have reported 2011 earnings.
Today’s mountain men who roam Wall Street’s canyons say there are many more companies waiting to file to go public.
Tech Is King
February’s IPO calendar flashed a sign. Leadership is emerging. It is technology.
Actually, technology leadership has been there right along, but it leaped into notoriety last week. Here’s what happened on Friday:
Bazaarvoice (BV) filed to price its IPO at $8 to $10 per share. It was priced at $12, opened at $16 and closed at $16.51, UP 37.6 percent from its initial offering price.
Proto Labs (PRLB) filed to price its IPO at $13 to $15 per share. It was priced at $16, opened at $25 and closed at $29, UP 81.3 percent from its initial offering price.
Priced to Sell
There has also been an interesting development in pricing the “out-of-favor” IPOs.
Reaching back to January 2000, when an IPO’s offering terms were cut to meet limited demand, the cuts were usually minimal, and those IPOs scored an averaged opening-day gain of just 1.9 percent.
Not so in February 2012.
From Feb. 2 through Feb. 22, the calendar produced 14 IPOs and 12 were slashed, according to the U.S. Securities and Exchange Commission (SEC) filings. Those were deep discounts, like in a department store’s “bargain basement” sales. Those cuts ran deep – some well over 50 percent from their original filing ranges. You rarely saw that before February 2012.
For those 12 IPOs whose prices were slashed, the average opening-day gain was 15.3 percent versus a 12-year average of just 1.9 percent. In Wall Street jargon, this type of gain is called “a dead cat bounce.” Last week, there was another example.
Ceres (CERE) filed to price its IPO at $21 to $23 per share. The price was slashed to $16 to $17. The deal was scheduled to have been priced on Wednesday, Feb. 15. It didn’t happen.
Fast forward to Tuesday, Feb. 21: Ceres was priced at $13, down 43.5 percent from the high end of its $21-to-$23 filing range. It opened on Wednesday at $14.80, and closed its opening day at $14.80, UP 13.8 percent from its initial opening price.
From Chips to Chocolate
This sets the stage for this week, beginning on Monday, Feb. 27. The calendar has six IPOs expecting to raise about $600 million.
Now here’s the breakdown: Of this week’s six deals, two are technology companies. One tech IPO is from GCT Semiconductor, which designs and supplies high-speed chips and systems for smartphones and other gadgets. The other tech name in the spotlight is Yelp! It publishes business listings with consumers’ online reviews of everything from where to buy the best chocolate to finding a dentist.
GCT Semiconductor plans to price 7.5 million shares at $7 to $9 each on Wednesday evening. The IPO is expected to start trading Thursday morning on the NASDAQ Global Market under the proposed symbol “GCTS.” The lead manager is BofA Merrill Lynch.
The company is a fabless designer and supplier of advanced 4G mobile semiconductor solutions. Based in San Jose, California, GCT was formed in 1998.It has about 203 employees.
Yelp! plans to price 7.2 million shares at $12 to $14 each on Thursday evening. The IPO is expected to start trading Friday morning on the New York Stock Exchange under the proposed symbol “YELP.” The joint-lead managers are Goldman Sachs, Citigroup and Jefferies.
The company connects people with local businesses featuring over 22 million reviews of almost every type of local business from restaurants, boutiques and salons to dentists, mechanics, plumbers and more. Based in San Francisco, Yelp! was formed in 2004. It has about 918 employees.
So what’s next?
Watch the SEC filing window for companies in registration to update their financials with 2011 results. Some of those amended filings may include IPO pricing terms.
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions