Wednesday, April 04, 2007
Howling at the IPOs
In the major markets this correction is looking more like a flat, rather than a triangle (Neely) or an impulse down (Prechter). This raises the likelihood of a trading range into May, followed by continued uptrend all the way through the 2008 election. In the meantime some negativity has crept into the recent surge of IPOs, but, as Ted Tobiason, Managing Director of Deutsche Bank Securities opines, the criticism is not supported by the facts, and the tech IPO window remains open with more to come. Excerpted below the fold.
"Until last week every tech IPO since December 19th had priced above the mid-point of its range. Of the last three deals, one priced at the mid-point and two were well below the range. January and February deals are up over 30% from issue on average while March deals are up just under 15%. Four of the twelve deals done this year are below issue and two of those were March deals. Pricing and aftermarket performance have both weakened.
"According to a number of market pundits and the Sunday NYT, deal quality had declined as issuers have rushed to get out during a hot IPO market. The measure of quality is profitability and the reference point is the tech bubble in most of these arguments. But the market statistics of the last twelve months don’t support the thesis. Unprofitable companies have priced an average of 10% above the mid-point vs. 3% for profitable companies. And unprofitable companies have appreciated in the aftermarket 37% vs. 26% for profitable companies. Independently these are both strong performances. ...
" [A] number of investors have argued that deal quality has declined so far this year. But profitability alone doesn’t measure quality. A reasonable question is, “If you slowed the growth down, could you be profitable now?” Clearwire tried that argument but they were only profitable (in a real way) in two of the many markets they were entering, so the argument didn’t take.
"The market does seem to be more discerning but that may also reflect a broader spectrum of deal quality in the market. Unfortunately “discerning” isn’t as simple as looking at most recent quarter profitability but requires real analysis of products, pricing, management, strategy, business leverage and risk. And this will also require a focused and consistent effort from underwriters to help IPO investors accurately assess the business fundamentals and risk. "
yelnick.typepad.com
Howling at the Moon
yelnick.typepad.com |
