Update: TubeMogul IPO Price Reduction Changes Short Thesis

Jul.17.14 | About: TubeMogul (TUBE)

Summary

TubeMogul reduces IPO target to $57.5M from $94M and cuts target price range to $7-$8 from the original anticipated range of $11-$13.

A short on TubeMogul stock is only recommended at the original $11-$13 range.

An undersubscribed offering was anticipated due to extremely lofty original valuation, so this is not surprising.

Only July 11 I wrote an article with a thesis stating that the TubeMogul (Pending:TUBE) IPO valuation is too rich compared to publicly traded competitors, specifically YuMe (NYSE:YUME). Now less than one week later, the IPO is undersubscribed and TubeMogul has been forced to slash its pricing target from $11-$13 to $7-$8. As a result, I am updating my suggested short thesis.

At this new updated pricing, the company is set to only raise about $57.5M compared to prior expectations of $94M. However, according to the ammended S-1, insider buying of the IPO has been increased. Trinity Ventures, owner of 26.2% of TubeMogul, is said to be buying $5M worth of shares. Foundation Capital, which owns 22.4% of TubeMogul, will be buying $20M worth. As it stands now, insiders have plans to buy up greater than half of the public offering.

Due to this downward re-pricing, I have changed my expectations. Although I do believe that at $7-$8, TubeMogul is still considerably overvalued, but no asymmetric risk reward opportunity exists in the shorting of the stock at those levels. I continue to recommend a short of TubeMogul stock but only at the original IPO pricing levels. So if the stock happens to run to the $11-$13 range, a short can be initiated. My position on YuMe has not changed and I am still very long this stock with a price target of $15.

Disclosure: The author is long YUME. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.