In this week’s interview with Francis Gaskins, President and Editor of IPOdesktop.com, we take a look at the week ahead for upcoming IPOs, and discuss which names stick out as attractive opportunities or to just flat-out avoid. We also get his take on the recent rumblings of Twitter revisiting the prospects of going public, and how the situation shares some similarities of hot tech IPOs of the past.
Gaskins has been recognized by major financial media outlets such as Forbes, CNBC, Bloomberg, and many othersas one of the best resources for the IPO industry available today. Gaskins is a highly sought-after expert for his insights and opinions as an IPO analyst. Readers can see his previous weeklyinterviews with Equities.com here.
EQ: On Thursday, shares of ING spin-off Voya Financial (VOYA) began trading on the NYSE. This was the second largest offering so far this year, and one that you liked going into the IPO. What are your thoughts on how it did?
Gaskins: VOYA priced at $19.50, below the mid-range price point of $22.50. It initially traded a little below the IPO price, then closed up 6 percent. We put out an aftermarket buy a little above the IPO price just after trading started.
VOYA was a forced spin-off of a Dutch parent, ING, which was bailed out by governments in 2008, and they want their money back. On a "compare and contrast" basis, VOYA was priced at a discount relative to its peers, which is why it went up post-IPO.
EQ: This coming week is a busy one for the IPO market, with about 10 on the schedule. There seems to be an emphasis on real estate (REITs) and financials. Are there any names in that area that stand out to you for good or bad reasons?
Gaskins: Quintiles Transnational Holdings (Q) is the largest with a proposed $749 million IPO and a market capitalization of $4.9 billion. Q is the world’s largest provider of biopharmaceutical development services and commercial outsourcing services. It’s the biggest company in the sector, but it’s a low gross margin service business, with 25 percent gross margins. Q will be an instant institutional stock and should do OK, not great, on the IPO.
Armada Hoffler Properties (AHH) scheduled a $175 million IPO with a market capitalization of $333.5 million at a price range mid-point of $12. AHH wants to convert to REIT (Real Estate Investment Trust) on the IPO, but 47 percent of revenue in the March quarter was from their general contracting business. There has never been a ‘general contracting REIT’. The IPO buyers will not have done their homework regarding REITS.
Access the full IPO calendar is here.
EQ: One name you like is CYAN, which is attractive for its top-line growth but not so much for its bottom-line figures. Can you talk a bit about both?
Gaskins: Initially, CYAN (CYNI) looked interesting. CYNI pioneered innovative carrier-grade networking solutions that transform disparate and inefficient legacy networks into open high-performance networks.
Revenues are increasing at a fast clip: up 85 percent in the March 2013 quarter compared to March 2012.
But in looking deeper it turns out that one customer accounted for 47 percent of revenue for the March 2013 quarter. That customer indicates they will be reducing their purchases. CYNI’s losses have been increasing and they introduced a major new product in December, 2012.
Given CYNI’s long sales cycle combined with new product introduction expenses combined with the major customer cutting back – it would not be surprising if losses increase and sales momentum decreases.
EQ: A lot of investors have been eyeing Twitter’s possible IPO for years, and the rumblings got stronger this week with news that the company hired Morgan Stanley managing director Cynthia Gaylor. Do you put any weight into this speculation? Would Twitter even be an attractive IPO right now based on what you know about the company?
Twitter has been preparing the market for its IPO for several years, all the while denying they are interested in an IPO. It reminds me of how Google (GOOG) continuously "prepared the market" (read: "hyped" the IPO market, pre-IPO) in 2004. Google ended up doing a "dutch auction" rather than a firm underwriting.
Twitter certainly has the consumer market exposure to do the same thing, but I believe they’ll do a firm underwriting because in today’s market it’s good to have friends on Wall Street.
In terms of trading, I wouldn’t be surprised if Twitter’s stock trades up in the first few minutes without regard to underlying financials. It will take some time for the stock to settle in, just like it did for Facebook (FB).
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