Why Acacia Communications Is Falling

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Acacia Communications Inc. (NASDAQ: ACIA) had one of the hottest initial public offerings of the year so far, with the stock more than quadrupling since its IPO. But now the company is looking to cash in on its recent success with a secondary offering.

A secondary offering after a stock has jumped massively is one way for companies to literally cash in on their recent success. Although they are diluting shareholders, it could be worse if the price was lower. In some cases having a secondary offering may send the price lower, but in this case the company is looking to fund its continued growth, so investors and analysts are bullish on where Acacia can go from here.

The company will be offering $125 million’s worth of shares, with an additional $325 million being offered by the selling shareholders. Note that Acacia currently has a market cap of roughly $4 billion.

The underwriters for the offering are Goldman Sachs, Merrill Lynch, Deutsche Bank, Morgan Stanley, Needham, Cowen, William Blair and Northland Capital Markets.

In terms of its finances, Acacia detailed in its filing:

We have experienced rapid revenue growth over the last several years. Our revenue for 2015 was $239.1 million, a 63.5% increase from $146.2 million of revenue in 2014. Our revenue for the six months ended June 30, 2016 was $200.7 million, a 91.0% increase from $105.1 million of revenue in the six months ended June 30, 2015. In 2015, we generated net income of $40.5 million and our adjusted EBITDA was $47.5 million, compared to net income of $13.5 million and adjusted EBITDA of $20.4 million in 2014. For the six months ended June 30, 2016, we generated net income of $32.2 million and our adjusted EBITDA was $52.6 million, compared to net income of $9.0 million and adjusted EBITDA of $17.7 million for the six months ended June 30, 2015.

Looking back at its IPO in May: the company priced its 4.5 million shares at the high end of its range of $21 to $23 per share. At this price, the entire offering would have been valued up to roughly $119 million. However, the stock actually entered the market at $29, well above the set price. Since that time, the stock has risen to over $125 per share.

Shares of Acacia were last seen down 10% at $107.40, with a consensus analyst price target of $114.00 and a 52-week trading range of $27.05 to $128.73.