Monday brought on low closes and lowest post-IPO prices for shares of Demand Media, Inc. (NYSE: DMD), General Motors Company (NYSE: GM), Kinder Morgan, Inc. (NYSE: KMI), Sequans Communications S.A. (NYSE: SQNS), and even in the recent Zipcar, Inc. (NASDAQ: ZIP). We have outlined the trends and the underlying trading issues governing each right now. There may even be some market-related opportunity being created here.
Demand Media, Inc. (NYSE: DMD) had a rough Monday. The news driving it lower on Monday was a ‘reaffirmed guidance; where the company admitted that the algorithm changes did have some impact on traffic but at much less of a negative rate than what third parties had been reporting. This late-January IPO was hotter than what we originally expected in its outsourced content and SEO-farm business model. The original offering was 8.9 million shares, with a boost at the last-minute in shares sold by holders, and the price of $17.00 per share was above the $14.00 to $16.00 indicated price range. After its debut, shares hit a high of $25.00 and closed at $22.65. This still gave the company a market cap of about $1.5 billion at the time.
What was interesting about Demand Media was tha there was some controversy around the business model. Its content is largely dependent upon freelancers. Let’s just say that those same freelancers don’t exactly strike it rich, and in many cases are not even earning more than beer-money. Google Inc. (NASDAQ: GOOG) has also been at part of a SEO discussion for changing its algorithm, although there is some thought that Demand Media did not get penalized like many thought. This was actually the highest Internet valuation in years.
Demand Media shares hit a low on Monday of $16.91 and closed at $17.33 with more than a $2.00 drop on the day. The trading volume of 1.596 million shares was also the highest since its debut.
GM even beat earnings and revenue expectations on its first report ever. One issue is that some feel the auto market is going to be crimped by Japan’s woes on parts, some feel that 2011 car sales may not keep growth rates up, and some fear that the $100+/barrel oil and $4/gallon gasoline may drive buyers back to smaller cars. Higher buying incentives act as another concern as the company may be giving away too much to get a car sale.
GM shares hit $29.90 and closed down almost 1% at $29.97 on Monday. This was the first close under $30.00 since its IPO and the busted-IPO is now down about 10% from its IPO and down far more than that from the $39.00+ highs seen in early 2011.
Monday brought on a low of $28.23 and a low close of $28.52 after a $0.36 loss. The drop came on unimpressive volume, indicating that this was not likely anything ominous. A real explanation may simply be nothing more than that the deal was fully priced and that investors don’t want to just reward private equity-backers in an IPO. With CEO Richard Kinder at the helm, it has been surprising to see that there was such a dull follow-thru when it came to Kinder Morgan’s re-IPO.
The problem here may be nothing more than that there is still a huge private equity overhang. Another issue is that we saw that this was going to get strong demand even before the IPO price range came out, and it is very possible that the deal was just priced too high.
Its IPO was just last Friday and it raised gross proceeds of about $77 million after it sold 7.7 million ADRs at $10.00 per share. The expected price range had been $11.00 to $13.00 per share by offering 7.7 million ADRs at $10.00, below its proposed $11.00 to $13.00 range.
Shares opened soft on its debut and it fell under $9.00 faster than you could imagine. IPO investors and the company are also probably feeling ripped off as the stock closed at a very disappointing price of $7.96 on Monday.
Zipcar sold almost 9.7 million shares at $18.00 per share, well above the indicated $14.00 to $16.00 price range that was indicated. This stock’s opening price from its IPO debut last Thursday was $30.00, it hit a high of $31.50 as the top-tick, and it closed at $28.00 on its debut. Sorry, but a gain of 50% or more on a debut in a market where pricing should relatively efficient means that the underwriters did not give the company (or its selling shareholders) enough of a pricing.
This company has not yet been profitable but it has a very reputable brand with revenue growth and high demand. Its business model is just about to get going overseas. Shares have sold off each day as reality sets in and the stock hit a low of $26.13 on Monday and closed at $26.37.
***********
Seeing a bunch of reputable companies having poor IPO after-markets should act as a warning sign to the investing public. Popping shares up usually looks good unless they immediately come crashing back down to earth. Maybe these are all cases of reality setting in, or maybe these are cases where IPO after-market investors are getting a better opportunity due to market conditions.
We have recently seen more recognized brands filing to come public….
- Zillow just filed for an IPO for its online real estate information site on Monday.
- We also have Tesoro Logistics about to debut as well.
- We would also show some lessons as a cause for concern in the proposed Groupon IPO terms being discussed by the Web 3.0 IPO watchers even if this offering will likely be a record offering.
- These IPOs may also be a note for Facebook to consider as many feel that the $50+ billion valuation is getting too high.
You can join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.
JON C. OGG
Top Gaining Stocks
Top Losing Stocks