LinkedIn Corporation (NYSE: LNKD) may be an IPO shell game with such a low float, but that is a different argument. The demand was massive here for the professional social networking company’s May IPO. This was one of our Top 17 IPOs to Watch for 2011 and we did a poll on the IPO pricing that about 56% of respondents said the $45.00 price was too high another 19% said that was the top, and only 13% said it should go for over $60.00 per share. We noted the first pr
ice terms called for a $32 to $35 price range. The opening price was $83.00 and shares then went to $90 and then over $100 before reaching $122 at the peak… Now shares are back down to $77.50 and the analyst group sees a consensus price target of $93.80.
It turns out that the pricing was not high enough, but what the underwriters could have done more fairly was demand that more than 8% of its float come public. This remains a conundrum for investors today. A higher price or just a lot more shares… Either way the company was not done the greatest justice by the underwriters.
NetQin Mobile Inc. (NYSE: NQ) is supposed to be the mobile security leader in China with millions and millions of users. It sold 7.75 million ADRs at $11.50 per share, higher than the 7.1 million shares projected and at the top of its $9.50 to $11.50 per share range. The May 5 IPO fell from the start and closed down at $9.30 on its debut day. By May 23, NetQin was under $6.00 and the ADR is now under $5.00. Piper Jaffray & Co. was the sole book-runner and co-managers were Oppenheimer & Co. and Canaccord Genuity. They didn’t do investors any favors here even if the stock has recovered from its post-IPO low of $3.95.
Pandora Media Inc. (NYSE: P) was another lesson where the underwriters should have told the online music outfit “No!” on its low float. It came public in the middle of June when the underwriters could have been more forceful. The 14.7 million shares was only 9% of the float and the $16.00 price compared to the first print at $20.00 and a high print for some unlucky soul at $26.00. It closed down at $17.42 on its debut day, and the shares recovered after going to about $13.00 within the first few days to close back at $20.04 on July 1. That was the peak and shares are now down around the $10.00 mark.
A firm called BTIG, which was not in the underwriting group, said that Pandora was a “Sell” and worth only $5.50 per share almost simultaneously with the June IPO. The underwriters were more positive than that and Pandora has been trying to rectify the issue of having a lack of scale on its music costs. The analysts currently have a $16.81 consensus target, but we’ll see if that holds up when the float is increased in the months ahead.
Renren Inc. (NYSE: RENN) was an early May IPO that came public before the summer doldrums set in and it was being sold as “The Facebook of China.” We were shocked that Morgan Stanley, Deutsche Bank, and Credit Suisse still allowed the pricing on Renren when the company lowered its prior growth forecasts a week or so before the offering and considering that the head of the audit panel resigned a day or two before the IPO. The company sold 53.1 million shares at $14.00 and the stock surged some 40% initially.
The price gap up was shocking, and you can tally that to the brokers being able to appeal to investor greed at the time. “The Facebook of China” was all it took. Now shares are down under $6.00. That is crazy. The next time a company lowers prior growth and has the head of the audit committee leave before an IPO, will you burn your cash as rapidly? We said it before and will say it again, Renren was more like the “Face%$#& of China.”
Skullcandy, Inc. (NASDAQ: SKUL) also came public before the July sell-off turned into the July-August market panic. The company plays on premium headsets for MP3 players and premium music headsets for the young hipster crowd. Technically, this is a pure premium product company for those who want flashier earphones and headsets. Skullcandy sold 9.44 million shares at $20.00 per share for a premium pricing.
The company’s first earnings report was also a disappointment (despite 46% revenue growth) and you have to assume that the company and the underwriters could have guessed that the numbers would be weak at the time of the IPO. The same firms’ analysts actually gave this one a positive ratings bias after the earnings drop but the damage was done and the stock now resides under $15.00. Had this one priced at the low-end of the range it would have been more fair, but the $20.00 and higher prices (up to $23.40) were just too high for a company that almost every customer can technically live without.
And, what lies ahead…
The First Trust US IPO Index (NYSE: FPX) is not having a good 2011. At $21.95, its 52-week trading range is $20.65 to $26.67. Even the Global IPO Plus Aftermarket (IPOSX) around $10.50 is hovering around its year lows and down from $13.50 in July. You can thank many mispriced IPOs for at least part of that.
Don’t think that these companies are alone. Far from it. There are only so many that can be considered. Facebook is facing a serious conundrum ahead as it is reportedly delaying an IPO to keep employees focused. Mark Zuckerberg may be jeopardizing billions here or he could be winning on the upside. We also recently noted what the Teavana Holdings, Inc. (NYSE: TEA) implied: full valuation. Private equity-backed IPOs are often accused of being mispriced, and now Carlyle is looking to come public itself… When private equity wants to go public. We have also noted that Carbonite, Inc. (NASDAQ: CARB) was simply a victim of the stock market pressure. Otherwise it would have fetched more as underwriters had to cut the price to a giveaway to make investors buy the stock at the IPO price.
These were far from the first of the mispriced IPOs, and there will be many more in the years ahead. Lessons for Group and Zynga are many and the lessons for the underwriters and the IPO after-market investors await.
JON C. OGG
