The IPO Buzz: The Dark Side of Networking

May.16.11 | About: Schottenstein Realty (SCRT)

Over the last two weeks, social networking IPOs made their long-awaited debuts in the IPO market. By Friday’s close, it was ugly reading. This doesn’t mean the game is over before it started.

One IPO was from China, where the sector has fallen on rough times in the U.S. markets; the other had been struggling to go public since it filed in December 2008. It took almost two-and-a-half years to get the offering out the door. Here they are:

Renren (NYSE:RENN), China’s “Facebook” as it is known, priced its IPO of 53.1 million shares at $14 each on May 3. The IPO sold as high as $24 and closed on Friday, May 13, at $13.16, down 45.2 percent from its high.

(Note: Concerns have arisen over Chinese accounting procedures. That is not exactly a bullish endorsement for its stock.)

And FriendFinder Networks (FFN), a Boca Raton, Florida-based publisher of Penthouse and other adult online sites, such as HotBox.com and GetitOn.com, priced its IPO of 5 million shares at $10 each on May 10. The IPO sold as high as $10.01 and closed on Friday the 13th at $7.66, down 23.5 percent from its high.

(Note: Its prospectus states “We have a history of significant net losses” and reported an accumulated deficit of $230.6 million as of Dec. 31, 2010.)

Lusting for LinkedIn

Against this backdrop, we turn to this week’s IPO calendar. Topping the Street’s “Most Wanted” list is another social networking IPO. LinkedIn (LNKD – proposed), based in Mountain View, California, provides Internet professional networking for more than 90 million members in over 200 countries and territories. Founded in 2003, the company has about 1,288 employees and reported net income of $15.6 million on revenues of $295.3 million for the 12 months ended March 31.

The company plans to price 7.8 million shares at $32-35 each on Wednesday evening, May 18, to trade on Thursday morning on the New York Stock Exchange under the symbol “LNKD.”

(Note: LinkenIn expects to offer 4.8 million shares and selling shareholders expect to offer 3 million shares.)

The buzz around the Street was swirling within hours of the company posting its proposed pricing terms; on May 9, the deal was multi-times oversubscribed and turning into a feeding frenzy by institutional investors.

Nevertheless, there are naysayers. A Morningstar report dated May 11 concluded, “We expect our own fair value to account for operating leverage and robust revenue growth, but we are hard-pressed to view this offering as an attractive one for longer-term investors.”

But LinkedIn does not appear to be plagued by alleged questionable accounting procedures and ongoing deficits as with the recently priced social networking IPOs.

Health, Money and Real Estate

This week’s calendar rounds out with a healthcare provider, a closed-end management company and a REIT.

Advanced BioHealing, based in Westport, Connecticut, develops cell-based therapies to treat diabetic foot ulcers. Founded in 2004, the company has about 400 employees. It reported net income of $1.6 million on revenues of $161.4 million for the 12 months ended April 2. The company plans to price 13.4 million shares at $14-16 each on Tuesday evening, May 17, to trade Wednesday morning on New York Stock Exchange under the symbol “ABHB.”

(Note: Advanced BioHealing expects to offer 8.4 million shares and selling shareholders expect to offer 5 million shares.)

New Mountain Finance, based in New York City, is a closed-end management company that plans to invest in the debt of selected companies. The company plans to price 8.3 million shares at $14-15 each on Thursday evening, May 19, to trade on Friday morning on the New York Stock Exchange under the symbol “NMTG.”

Schottenstein Realty Trust (SCRT) is a Columbus, Ohio-based real estate investment trust. The company plans to price 26.7 million shares at $14-16 each on Monday evening, May 16, to trade on Tuesday morning on the New York Stock Exchange.

(Note: The deal is a carryover from last week.)

There are two blockbuster deals on next’s week calendar looking to raise over $1 billion each. Overall, seven companies are expecting to go public, looking to raise over $3.1 billion. It looks like it will be busy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.