This is a special expanded article, covering both December and the full year 2011.
12 deals were priced in December and the calendar ended abruptly about a week before the holiday season began in earnest. Except for one company that braved late December, it felt to most like a too-early holiday.
There were 19 new filings during December so the pipeline remains healthy. Some notable ones include Proofpoint, AVAST Software (Information Security) and Tumi (high-end luggage and accessories).
Eight deals were withdrawn in December. That’s about double the usual number. Many of these had unusual teams of underwriters and faced a critical market. Seemed like they wanted to go back to the drawing board.
As we gear up for 2012 the IPO outlook is decent. The pipeline is there and market conditions are generally supportive, at least for quality companies. It probably will not be a smooth ride, though. Europe remains mired in reform battles and still has growth and debt problems. The US seems to be muddling through, but 2012 is an election year. Our best guess is that Obama wins a second term but along the way there are likely to be programs, proposals and rhetoric that can move markets. (We have no political affiliation and our Obama guess is based on fairly reliable long- term precedent.)
First let's look at the month of December and then examine overall performance for the class of 2011 and also the rest of our IPO ecosystem.
December was another tough month, with the average stock down 4%. Combined with the 6% drop in November the October gains are gone. The top 10 names were up 15% and the bottom 10 were down 29%. December didn’t bring much cheer.
The best performer was Imperva (IMPV), a hot new IPO in Information Security. That success is likely to spur even more filings in the space.
NetSpend (NTSP) rebounds as kind of a “poor man’s Green Dot” within the consumer finance sector. Envestnet (ENV) is an interesting potential on “break away advisors” which is the trend in asset management.
Tax loss selling appears to have driven the loser list. All those names are down big for the year and worth more dead than alive in many portfolios.
December was a short, low-volume month. We should get some better price direction signals in January.
In terms of our class of 2011, the average deal is down 13% from where it priced. (Remember we track only growth names and avoid banking, REIT stocks, and commodities.) Only 20 deals are trading above their IPO price!
Three of the top names are technology driven stories (Imperva, InvenSense & Fusion-io (FIO)) and two are more traditional opportunities in large markets. We've been a fan of InvenSense since the beginning and we are covering them in RealVR practice.
Moving on to the dogs, the near-total loss of FriendFinder (FFN) should close the door for all adult-oriented content companies in the public markets. Nobody wants to own this stuff even when it’s disguised as “adult social networking.”
China was a big theme turned flash in the pan due to widespread accounting irregularities and so-so management. Most institutions avoided these names anyway.
Finally, semiconductors remain a challenging business due to the long cycle times, high investment levels and cutthroat pricing.
Turning to the pre-2011 IPO class, the performance was sobering there as well. Only 18 companies were positive for the year and the average loss was 29%!
There’s no sure way to make money in the IPO market but it would appear that a good way to lose money would be to try and find winners among the losers. Winners can have corrections but so far there have been few, if any, real turnarounds.
At the top of the pre-2011 we find e-commerce infrastructure player SPS Commerce. The company was up 53% in 2011 and exceeded our IV estimate.
Other winners were Accretive Health (+50%), SolarWinds (+45%), Convio (+31%), and SodaStream (+25%).
The big losers have appeared frequently in our monthly losers table so the names are familiar: Motricity (-95%), SemiLEDS (-88%), Camelot Info (- 88%), Ming Yang Wind (-82%) and Pacific Bio (- 81%).
We’ve included additional tables in the back of this report showing all the performance details along with the usual overview and pipeline spreadsheets.
IPO Candy Folio Update
The IPO Candy Folio continued to languish with the market and was down 1.73% in December. For the year the folio was down 24.87% versus a decline of only 5.45% in the Russell 2000.
The first big discovery we made was that the lack of hedging in the Folio forced it to suffer large losses in July and August that were at least partially avoidable. Unfortunately, there is little we can do about this. We may try bringing in some inverse ETF names in 2012 as a test.
The other big change we made (supported by the performance data above) was to shift to more concentrated positions. We didn’t do this until the middle of Q4 but we eliminated many names and concentrated our holdings more. [See the last Candygram for a list of the changes.]
Today there are 26 positions in the Folio and we have 21% in cash. After the November house cleaning we feel that the portfolio is solid. Some minor adjustments are planned for January and we may begin to experiment with some hedging techniques.
More information and disclosures regarding the IPO Candy Folio can be found at: ipocandy.com/invest.
We’ve updated the pipeline for new filings and priced deals. The total stands at about 130 deals.
No word yet on the big Facebook IPO but the market will be eagerly awaiting it.
Coverage And The Calendar
This month we will see banker coverage for the few deals that priced in December – Jive Software, Michael Kors and Zynga. Zynga stands to get the best boost from coverage since JIVE and KORS are up over 30% from their IPO prices.
Lockups coming off this month include Zillow, Skullcandy, Francescas, Dunkin Brands, Tangoe, Horizon Pharma, Chefs Warehouse and Teavana.