With the massive Facebook (FB) IPO out of the way on Friday, investors can now get back to investing in good companies where the IPO hype is gone already.
With the business media networks spending countless hours analyzing the Facebook IPO, investors learned an important lesson about supply and demand. Facebook priced 421M shares at $38 in order to raise $16B, but the stock went virtually nowhere in after market trading.
The huge amount raised was a lot for the market to absorb and clearly the size was all that could be handled with the stock closing up only $0.23. The market should've learned this from when the opposite happened with other social networking IPOs that priced considerably less amounts of stock at the beginning of the wave. Those stocks had some significant initial pops that led to lackluster returns in the after markets.
Considering Facebook has a valuation over $100B and the inability of the market to move the stock Friday, this should be a sign for investors of the problems ahead. Instead let's focus on some other hot IPOs that have already had the steam released from their sky high prices.
Jive Software (JIVE), Splunk (SPLK), and Millennial Media (MM) all provide interesting concepts that are now trading below post IPO highs. While these companies may never be valued as large as Facebook, all three provide the opportunity to invest in companies that have better abilities to appreciate, unlike the massive Facebook.
These companies all address the byproducts of Facebook and other social media plays, whether via mobile advertising or big data or social business software. Each company is now considerably lower than the after market highs providing more attractive entry points.
Jive Software - This company is a leading global Social Business provider that brings the social technology innovations from the consumer world into enterprises securely and at scale. Jive recently reported Q112 results that beat analysts estimates, though the stock has sold off since the report.
Analysts expect $113M in 2012 revenue, so the company currently trades for less than 10x revenue. Not a cheap valuation, but in order to own a fast growing social software player the multiple might not get much cheaper.
The stock hit just over $28 at the end of March so any investor buying now at $17 can get a substantial discount from the highs. The stock spent most of January below $14, maybe providing the ideal entry point if the stock gets that low.
Splunk - This company provides the engine for machine data by collecting, indexing, and harnessing the massive machine data continuously generated by the applications and devices that power business.
This company won't report first public quarterly results until May 31st so investors should be hesitant to build full positions until seeing how the market handles the results. Analysts expect $167M in revenue for the year, placing it as the more expensive of the stocks on this list with a market cap at $2.7B.
Splunk traded as high as $37.34 and can now be bought for $29. Considering the valuation at over 10x sales and the weak market, the best guess is that this stock provides a better entry point soon.
Millennial Media - This company is the independent leader in mobile advertising with the second largest mobile ad network. Its technology, tools and services help app developers and mobile website publishers to maximize their advertising revenue and acquire users for their apps.
Millennial recently reported Q112 results that beat all estimates, though a rogue estimate led to some major confusion, causing First Call to update the listed estimates. Analysts expect $175M in 2012 currently providing the most compelling valuation of the group with a market cap of just over $1B.
The stock initially surged to $28 on the launch date, but it has since plummeted back to the IPO pricing and currently trades at $13.63. A confluence of scares including the above mentioned estimates, lack of profits, and questions about monetizing mobile traffic from the likes of Facebook all led to the perfect storm to crush this initially hot IPO.
These three stocks were all the hot IPO the week their respective stocks priced, but as time has passed the excitement has worn off. Typically the first earnings report as a public company can provide some reality to investors originally willing to pay sky high valuations at the IPO. As the company transitions from a concept to valued based on the actual earnings, investors tend to pay less for a stock. That is the point where individual investors should look into buying in the after market.
All this adds up to better deals for investors interested in big data or mobile advertising. Has anything changed to suggest that Millennial Media should plunge 50%?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Please consult your investment advisor before making any investment decisions.