More trash talk from our best "fiend" Duncan Stewart:
Sunday March 5, 2:38 pm Eastern Time
Bay Street Beat:Nasdaq listing can be mixed blessing
By Sarah Edmonds
TORONTO, March 5 (Reuters) - Although Canadian exchanges are gaining a gloss of high-tech sophistication, many of the country's fast-growing firms still see a Nasdaq listing as the ultimate symbol that they have arrived.
Analysts say that for all the hype, a U.S. stock symbol is far from a guarantee of a soaring stock price and a place in the big leagues.
While Nasdaq, the world's preeminent tech stock market, often offers a valuation boost, companies also risk savaging from U.S. investors -- often more fair-weather friends than conservative Canadians -- if they stumble.
``There's almost this belief on the part of Canadian retail investors that once a company is going on the Nasdaq, it's a panacea -- no matter what a collection of mopes and dopes they were before, now that they're on the Nasdaq, all is sunshine, roses and lollipops,' Tera Capital technology fund manager Duncan Stewart said.
In reality, those who succeed in the Nasdaq fast-lane are powered by their own solid fundamentals, not a sexy listing.
In the short run, the share price benefits are undeniable.
Last week, Internet encryption technology company Certicom Corp. (Toronto:CIC.TO - news) said it had applied for, and cyber-gaming concern CryptoLogic Inc. (Toronto:CRY.TO - news) said it had been approved for, a Nasdaq listing. Both stocks surged on the news.
CryptoLogic jumped to C$65, a gain of 27 percent, on the Toronto Stock Exchange on Friday before pulling back to close up C$9.85 at C$61.10. Certicom finished up a hefty C$32.50 at C$225 on Thursday when it announced its application, but profit-taking took it down C$2 on Friday to C$223.
While CryptoLogic -- unlike Certicom -- is listing on Nasdaq without doing a separate equity issue, founder and Chief Executive Andrew Rivkin said the company could well need to tap the markets should it need to do an acquisition or deal.
``It's critical that we have access to the types of resources that Nasdaq brings at an instant -- just access to large amounts of money,' he said.
Certainly, as a pool of capital, Nasdaq dwarfs Toronto with a market capitalization about six times that of Canada's largest bourse, as of last autumn.
While Rivkin admits that while doing his homework on the benefits of going to Nasdaq, he encountered mixed reviews, he still feels that tech stocks stand more chance of commanding high multiples in the United States than in Canada.
``I think Canadians are slightly more conservative than Americans are in investing in these types of enterprises,' he said. A stronger stock price fattens shareholder pockets but also means a stronger currency with which to do deals.
The TSE is becoming more and more similar to Nasdaq, with growing liquidity, burgeoning volumes and huge volatility. And like its powerful rival, the increasingly tech-heavy TSE has continued to clamber to record heights this year despite a fall in more Old-World indexes.
However, Nasdaq is still the clear victor. As of November 1999, its total share volume to date in the year was 10 times that of Toronto and its total dollar volume nearly 30 times the value traded on the TSE.
``You don't get full value for your company if all you're really doing is exposing yourself to domestic funds or international funds that can invest in those sorts of markets,' said strategist Geoffrey Dennis at Salomon Smith Barney.
One technology analyst, who feels that the issue of U.S. listings is a sensitive one with Canadian brokerages and so declined to be identified, said those choosing to list south of the U.S.-Canada border must weigh risk against reward.
``Clearly over the short-term there's an immediate valuation premium that comes from attracting U.S. investors,' he said.
The analyst added that upbeat coverage by U.S. brokerage Merrill Lynch, for example, helped triple the share price of Canadian Internet pager company Research In Motion Ltd. (NasdaqNM:RIMM - news). But that distinctly greener grass can be teeming with snakes for the unwary or the unsuccessful.
Internet auctioneer Bid.Com International Inc. (Toronto:BII.TO - news), whose stock had a dismal debut, is an oft-cited object lesson for firms who see Nasdaq as an unguarded treasure trove.
``Nasdaq in particular is most unforgiving and cruel toward companies that underperform or miss their financial forecasts or mislead investors. And I'm sure no Canadian companies set out to do those things but there have been some Canadian companies that have suffered dire consequences,' the analyst said. ``And there is also the risk that if you flame out, you'll become an orphan stock on Nasdaq with no following.'
The big fish, small pond argument also holds water. A company involved in Internet gaming in Canada is likely to be in a much more select company on a Canadian exchange than on Nasdaq, where it could get lost in the crush, Stewart said.
``Although it is a much larger supermarket, there are many, many other brands on the shelf competing for attention.'
Again as of November last year, Nasdaq listed 4,844 companies against Toronto's 1,399 and a far larger proportion of Nasdaq's listings are technology companies. Toronto's tech pool is much, much smaller.
($1=$1.46 Canadian)
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