Perhaps the most defining element of the IPO market is that it provides investors opportunities to back companies at various business stages. Some newly-public companies, like Dunkin' Brands (DNKN), have been around for years with attractive fundamentals. Others, like Facebook (FB), have short operational histories but could still benefit from public financing. Still others exist as pure venture plays. Rational participants invest in this diversity of risk/reward to ultimately drive market efficiency.
In this article, we will highlight a few companies that have either gone public or are about to go public.
Facebook recently reached 900M members for it social networking website, which, according to Alexa, is currently the 2nd most popular website on the internet. The rumored IPO date was initially May 17, but some are now speculating that the date will be pushed back to around late May / early June.
It appears that the delay stems from management's focus on acquisitions. The company revealed 2011 profit of around $1B, which means that it trades around 100x the expected IPO valuation. Year-over-year revenue rose in 1Q11 to $1.06B, but profit fell 12% to $205M. After the $1B Instagram and $550M AOL patent portfolio from Microsoft (MSFT), some investors are concerned about overspending.
This social game developer actually generated more than a tenth of Facebook's revenue. Zynga, which has been public for around four months, is attractive to many investors due to its early mover advantage. Zynga is directly leveraged to the positive secular trends in social networking while having the benefit of distribution through traditional mediums. Meanwhile, short-term momentum has been strong with revenue nearly doubling to $1.14B in 2011 off of the preceding year.
Zynga currently has an average volume of 12.8M on nearly 700M shares. This compares to an average volume of 3.3M on around 100M shares for LinkedIn (LNKD). LinkedIn offers a social networking site with a professional motif. The stock has gained 9.1% since going public while Zynga has fallen around 4.1%. In this instance, the more illiquid stock has offered the highest return.
Andrews Development International PLC [ANDI:GXG]
Andrews recently went public on the GXG Market Exchange. The company is a diversified financial holding company that focuses investments on real estate and emerging markets. Andrews' core business comes from helping companies go public and financing M&A. Management takes an initial stake in their clients and channels profits back into real estate investments. Andrews has specifically expressed interest in multi-family properties.
By supplementing existing businesses -- mining, real estate, IT, and pharmaceuticals -- with superior access to M&A financing, Andrews is able to unlock synergistic value for its clients. And on the real estate-side, the company has created a vertically-integrated structure. Management provides everything from property management services to construction business plans.
Although best known for its Dunkin' Donuts business, Dunkin' also owns Baskin-Robbins. Food selections include ice cream, frozen beverages, and, of course, donuts. With an international presence, the company is well positioned to hedge against domestic volatility.
Since going public around 8 months ago, Dunkin' has gained 14%. In FY2011, revenue totaled $628M and EBIT totaled $171.1M. Double-digit growth bodes well for investors, especially in light of the $247M liquidity position at the end of last year. Free cash flow declined in FY2011 to just north of $144M, but the strong brand name nevertheless limits downside.
DISCLAIMER: The distributor of this research note, Gould Partners, is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence. We are an investor relations consultant to Andrews and have received 100,000 shares worth of equity compensation from the company for our services. We reserve the right to sell or buy at any time.
Disclosure: I am long ANDI:GXG and may initiate long positions in all of the companies mentioned in this report.