A Tale Of 2 IPOs

Includes: JIVE, LPI
by: Stone Fox Capital

Any investor paying attention should know this last week was the busiest IPO week in the U.S. in years. The slate was headlined by well-known Facebook game maker Zynga (NASDAQ:ZNGA), with secondary focus on Jive Software (NASDAQ:JIVE) and luxury retailer Michael Kors (NYSE:KORS). The rest of the IPO's had limited focus.

Already knowing the issues with Zynga are similar to Groupon (NASDAQ:GRPN) and Angie's List (NASDAQ:ANGI), we quickly zipped past that offering (dropped 5% on first trading day Friday). Read Why Angie's List Shouldn't Be Listing for more details.

MIchael Kors is interesting as well, but the stock looks pricey and investors already have plenty of luxury retailers to buy.

That brought us to the two stocks that we decided to research further.

First up was Jive Software. It provides social media software for enterprises that falls into the hot cloud software sector. A sector ripe with excitement due to the recent SAP buyout of SuccessFactors (NYSE:SFSF). See a previous article here that talks about the cloud software sector. Besides, it even has a hip name that might help it standout in the social media space.

Unfortunately when looking at the books, the financial picture just isn't as inspiring. To our surprise, Jive reminds us too much of Angie's List. Though both companies supposedly have great products, neither product appears to sell itself without tons of marketing costs. For example, Jive has spent more on sales and marketing this year than it had in gross profits ($31.8M vs $30.4). Not many companies can survive long with that ratio.

The second interesting IPO is Laredo Petroleum (NYSE:LPI). It stuck out considering the 100% revenue growth so far in 2011 and limited IPO buzz. Sure, the energy producer has no major distinguishing business model, but it does have the production growth to warrant more research.

I think most investors would be shocked to find out that Laredo has faster growth for the first nine months of 2011 than Jive. Not to mention that Laredo is very profitable and Jive might take years before netting positive income.

Laredo has 324K net acres to explore with a large percentage in the Granite Wash and Wolfberry areas. Plans to grow production at 25% a year going forward. The CEO plus numerous members of the management team has a history of developing companies and selling them for nice premiums. The one concern would be that Laredo is the first company they've taken public.

Below are overviews plus a table with general financial information for both stocks. Interesting companies, but the divergence in financial performance really sticks out:

Jive Software (JIVE)

Overview - provides a social business software platform that improves business results by enabling a more productive and effective workforce through enhanced communications and collaboration inside and outside the enterprise.

Bullish Numbers

  • Revenue continues to grow very fast with a 73% growth rate for the first 9 months of 2011.

  • Renewal rate remains high at 90% for $50K+ subscriptions

  • Renewal rate jumps to 110% when counting subscription upsells.

  • Billings outpace revenue by a significant amount. For example, Q3 had $26M billed compared $20.8M in revenue providing plenty of revenue upside in the next year.

Bearish Numbers

  • The company continues to lose money at a significant rate and warned that this will continue for the foreseeable future.

  • GAAP loss hit $38M for the first 9 months of 2011.

IPO Pricing Details

The company raised $161M by offering 13.4M shares at $12, or 20% above the high end range of its proposed $8 to $10 price range. Jive originally filed to sell 11.7M shares. Existing shareholders only sold 3.37M shares, leaving them with considerable positions after the IPO.


The stock began trading on 12/13 above the pricing in the $15 range. It ended the week at $15.10, 26% above the IPO price though flat from the opening price.


The company now has 60M shares outstanding. The market cap is over $900M based on Friday's closing price.

Laredo Petroleum (LPI)

Overview - independent energy company focused on the exploration, development and acquisition of oil and natural gas properties in the Permian and Mid-Continent regions of the United States.

Bullish Numbers

  • Revenue, income and adjusted EBITDA grew 100%+ year over year.

  • Current production is mostly based on 660 gross vertical wells.

  • So far, Laredo has only drilled 37 gross horizontal wells, leaving a large inventory remaining.

Bearish Numbers

  • Having only drilled 37 gross horizontal wells, future growth is based on a new technology with which the company has limited experience.

  • Laredo owes around $800M in debt prior to this offering and $650M in available credit after the offering pays down the credit line.

  • Capital budget for 2012 amounts to $757M. Operating cash flows will not cover those expenses, requiring additional borrowings.

IPO Pricing Details

The company raised $298M by offering 17.5M shares at $17, below the range of $18 to $20.


The company began trading on 12/15 above the IPO pricing, which is unusual for a stock that priced below the initial range. The stock ended the week at $18.80, 10.6% above the IPO price and nearly 10% above the opening trade.


The company will have 125M shares or 127.6M shares with over-allotment outstanding. The market cap is $2.4B based on Friday's closing price.

9 months ended
9/30/11 9/30/10 % Change
Laredo Petroleum
Revenue $371,307 $157,061 136.4%
Income 103,988 51,158 103.3%
Adj EBITDA 283,850 123,519 129.8%
BOE/d 22,842 12,982 76.0%
Permian Basin
Wolfberry 127K
Granite Wash 37.7K
Dalhart Basin 74K
Central TX Panhandle 48K
Eastern Anadarko 37.2K
Total 324K
Jive Software
Revenue 54,771 31,596 73.3%
Income -38,138 -20,875 82.7%
Billings 68,880 46,014 49.7%
Stock based comp 7,524 2,610 188.3%
Adj Loss* -16,505 -3,847 329.0%
*Measure adding in billings difference and subtracting stock based compensation
Click to enlarge

At an estimated $400M EBITDA for 2011 and likely over $500M for 2012, Laredo trades at a much more attractive multiple than Jive Software. Considering Jive has operations that are cash flow negative, investors need to watch closely to make sure the company turns the corner in the near future.

Social media software undoubtedly has a huge future, but the question remains whether it will be profitable for companies like Jive and especially investors. At a low price to billings multiple, which currently stands at 9, Jive might be worth the gamble. Until then, investors might be best to wait for the story to unfold more.

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

Additional disclosure: All data obtained from the prospectus and presentation from retailroadshow.com. Please consult your financial advisor before making any investment decisions.