Financial Engines' Strong IPO Excites Wall Street

Mar.18.10 | About: Financial Engines, (FNGN)

Financial Engines (NASDAQ:FNGN), a provider of portfolio management services, priced its IPO at $12 on March 15, above the expected range of $9 to $11 per share. According to Renaissance Capital, return from the IPO was 39.1% and the first day return was 43.8%.

Business Overview (from prospectus)

We are a leading provider of independent, technology-enabled portfolio management services, investment advice and retirement help to participants in employer-sponsored defined contribution retirement plans, such as 401(k) plans. We help investors plan for retirement by offering personalized plans for saving and investing, as well as by providing assessments of retirement income needs and readiness, regardless of the investor’s personal wealth or investment account size. We use our proprietary advice technology platform to provide our services to millions of retirement plan participants on a cost-efficient basis.

Offering: 10.6 million shares at $12 per share. Net proceeds of approximately $52 million (excluding sale of stock by selling stockholders) will be used for general corporate purpose including working capital and capex.

Lead Underwriters: Goldman Sachs (NYSE:GS), UBS Investment Bank (NYSE:UBS)

Financial Highlights:

Total revenue increased 19% from $71.3 million in 2008 to $85.0 million in 2009...Cost of revenue increased 7% from $27.6 million in 2008 to $29.6 million in 2009...Research and development expense increased 14% from $13.7 million in 2008 to $15.6 million in 2009...General and administrative expense increased 16% from $6.6 million in 2008 to $7.7 million in 2009...Net income of approximately $5.7 million in 2009 as compared to a net loss of $3.6 million in 2008...


We operate in a competitive industry, with many investment advice providers competing for business from individual investors, financial advisors and institutional customers. Direct competitors who offer independent portfolio management and investment advisory services to plan participants in the workplace include Morningstar (NASDAQ:MORN), GuidedChoice and ProManage. Plan providers that offer directly competing portfolio management and investment advisory services to investors in the workplace include Fidelity and Merrill Lynch. We currently have a relationship with Fidelity that allows us to provide our services to plan sponsors, for whom Fidelity is the plan provider, who elect to hire us.

We also face indirect competition from products that could potentially be substitutes for our portfolio management services, investment advice and retirement help, most notably target-date retirement funds. Target-date funds are offered by multiple financial institutions, such as BlackRock (NYSE:BLK), Fidelity and Vanguard. These funds provide generic asset allocation based solely on the investment horizon of the investor. Among the plan sponsors to which we offer our Professional Management service and that offer lifecycle funds, approximately 80% offer retail-priced target-date retirement funds. Target-date funds, managed account and balance funds have been granted QDIA status by the Department of Labor.

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