First day pop doesn’t guarantee longer term success
Thursday’s IPO by satellite image maker DigitalGlobe was the fifth in row to surge in its first day of trading, rising 13 percent in another sign of the IPO market turning around. But a first day pop does not necessarily guarantee long-term success.
Just take a look at the other IPOs this year, with their respective first day pops:
- Mead Johnson, 10 percent (Feb. 11) (pediatrics nutrition) - Changyou.com, 25 percent (April 2) (online video games) - Bridgepoint Education Inc, 5.7 percent (April 15) (online college operator) - Rosetta Stone, 40 percent (April 16) (language training software)
Bridgepoint is now trading below its offer price of $10.50, which was below the estimate range in the first place.
Rosetta Stone, which wowed the markets last month with the best first day performance in a year, forecast a loss earlier this week and its shares are now 31.5 percent down from their all-time high hit last week.
Not every IPO this year has been a dud. Mead Johnson is now 20 pct over its offer price while Changyou is 83 percent.
(PHOTO: Image released by DigitalGlobe showing the contrail and rocket plume of the North Korean Taepodong-2 launch vehicle on April 5, 2009, and released to Reuters on April 8.)
from Entrepreneurial:
Learning from Rosetta Stone
After its blockbuster debut on the New York Stock Exchange, language software maker Rosetta Stone is poised to teach more than just new languages -- it may also serve as a model for start-ups looking to go public in the midst of a recession.
In an interview with peHUB, Phil Clough of Rosetta Stone investor ABS Capital shared his thoughts on what made the company such a draw. The IPO earned ABS more than 6 times its initial investment.
What did Rosetta do right? For starters, it offered what ABS managing general partner Phil Clough calls "substance". Its online business business model was attractive, and its content and size gave it clout amid a crowded education sector.
But perhaps the most important lesson to take away from Rosetta's success is that sound business models can trump an ailing economy.
Says Clough: "In our experience, good companies can go public even in tough markets."
As peHUB noted in its Twitter feed: "Dear Facebook: If Rosetta Stone can go public, so can you."
Rosetta Stone IPO shows it pays to leave ‘em wanting more
What a difference a day makes.
A day after college operator Bridgepoint Education Inc had to settle for a shrunken IPO, language instruction company Rosetta Stone actually priced its $112.5 million IPO above its estimate price on Wednesday, and has followed that up by rising 42 percent in its inaugural trading day Thursday. But that “pop” might be a deliberate marketing decision, rather than a major mispricing of the deal.
Much of Rosetta’s success may have had to with the small size of float– 6.25 million shares– which led analyst Ben Holmes of Morningnotes.com to say the IPO had “built it in demand.”
And any company hopes to price its deal to get a first day “pop” to reward investors for their risk-taking. IPO Boutique‘s Scott Sweet said that Rosetta Stone’s enormous first day pop — if it holds, it will be the largest since Intrepid Potash‘s 58 percent starting jump nearly a year ago — will ingratiate investors and make raising additional money through a follow on easier. (Rosetta Stone CEO Tom Adams told Reuters on Thursday the company had no plans now to raise more money.)
But typically in a down market, bankers say a deal should be priced ideally to pop by 20 percent, so Rosetta Stone’s 42 percent pop might be overdoing it by leaving so much money “on the table.” Then again maybe not.
Adams told Reuters that the IPO was a major part of Rosetta Stone’s efforts to build its brand, and get the prestige of a listing on the New York Stock Exchange, as it works to build its business abroad. In an unusual move, the company used its IPO to tie in a promotion featuring a free seven day trial for the first 25,000 people to sign up.
Rosetta Stone could probably have taken home another few million dollars, but as IPO Desktop president Francis Gaskins put it, “They bought millions of dollars in advertising by pricing the deal as they did.”
Disappointing Bridgepoint IPO brings glimmer of hope to VCs
Putting cold water on the idea that the IPO market was beginning to move past its doldrums, at least for fast growing companies, Bridgepoint Education‘s IPO priced 30 percent below expectations Tuesday night, going for $10.50 per share, a far cry from the $14-$16 range the college operator had hoped for.
Bridgepoint broke a short-lived two-IPO streak that saw Mead Johnson Nutrition Co and Changyou.com price at the top of their ranges and soar in their market debuts. And that was despite Bridgepoint’s enviable 150 percent revenue growth in 2008.
Still, Bridgepoint’s IPO brought some hope to venture capitalists, who have had to contend with a 90 percent drop in VC-backed IPOs in 2008, and are looking for an exit for their portfolio companies. Owned primarily by Warburg Pincus, Bridgepoint is the first venture-capital backed IPO since web hosting company Rackspace Hosting’s $187.5 million IPO in August 2008, according to Thomson Reuters.
Part of Bridgepoint’s problem might have been its pricing. Bridgepoint’s valuation was similar to that of rival and fellow recently public university operator Grand Canyon Education Inc., even though as the newest entrant among education stocks, it would be expected to offer a discount.
But Connecticut-based Renaissance Capital analyst Matt Therian told Reuters he guessed Bridgepoint was betting its lower tuition and easier credit transferrability would convince investors Bridgepoint would continue its torrid pace of growth and to pony up. Apparently, investors disagreed.
Still, give Bridgepoint credit for launching an IPO at all in the toughest market in years. (Another three companies have cancelled IPO plans in the past week, including Al Gore’s Current TV.)
The latest test for how much the IPO market is reopening comes Wednesday night when language learning tool provider Rosetta Stone attempts its IPO.
Après le Changyou IPO, le déluge?
Well maybe not yet, but it was a good week for IPOs, with hopeful signs the market is beginning to awaken from its long slumber.
Thursday’s IPO by Chinese video games maker Changyou.com had a first day “pop” of 25 percent, the strongest debut in a year, making it the third IPO in a row, after Mead Johnson in February and Grand Canyon in November, to do well.
Two more companies, language instruction provider Rosetta Stone and Bridgepoint Education, apparently buoyed by all the advance buzz around Changyou, scheduled their IPOs for pricing in two weeks.
All well and good, but this burst of activity shows what the still-finicky market is interested in as much as what it still avoids: riskier, debt-laden firms that make up the bulk of IPOs in flush times.
In contrast, Rosetta Stone and Bridgepoint, fast growing and profitable, operate in an industry that is faring the recession relatively well, as evidenced by Grand Canyon’s solid performance since its IPO. And Changyou and Mead Johnson were money-making carve-outs of large companies, with well known brands.
Perhaps more instructively, both Changyou and Mead Johnson settled for IPO’s that could have been larger and more aggressively priced.
And as UBS’s Tom Fox, head of equity capital markets for the Americas, told Reuters last week, once more companies accept that lower valuations are now the rule of the day, more will try for an IPO
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