July marked a good sequential improvement in the health of the IPO market, with 13 deals priced versus just five in June. These were also a diverse mixture of technology, retail, restaurants, internet, energy and financial deals.
The best performing deals of the month were Kayak Software (KYAK) (Internet travel), Palo Alto Networks (PANW) (network security), Five Below (FIVE) (youth retail) and Natural Grocers (NGVC) (healthy food.)
Filings picked up a little, with 11 deals filed compared to eight in June. The number of filings has been bumping along between eight and 13 for the last few months. We've also heard about more "secret filings" being done under the new JOBS act. What this means for investors is that the companies file with the SEC for review, but the S-1 won't be visible until shortly before the offering. The idea is to protect company information from competitors, but it also makes it harder for investors to prepare.
There were seven withdrawals; the same as in June. We weren't surprised to see the famous guitar maker Fender pull its offering after seeing much growth opportunity based on the roadshow. Fender is a good example of a company that deserves to be private. More surprising was the failure of AVAST Software (AVST), which is in the very robust information security space. Part of the explanation is that the closest comparable company, AVG (AVG), has done poorly as a publicly traded company. Since pricing its IPO at $16 early this year, shares have traded down to $10. This stands in stark contrast to other names in the space, such as Imperva (IMPV), ProofPoint (PFPT) and most recently, Palo Alto Networks. The latter are all enterprise- rather than consumer -ocused.
As we start what is typically a "short month" in the IPO market, there are seven deals in active marketing. We'd expect these to be cleared by mid-month so investment bankers can join their families for a little vacation.
We discovered a "special situation" in an unlikely stock -- PetroLogistic (PDH) -- which slipped through the cracks and ended up offering investors a great entry point in what will be a very high yielding situation. It's basically a chemical refiner; not our typical bonbon, but the returns make even this monster look sweet.
Private Market Update
The exchanges for private stocks are still adjusting to a "post-Facebook" paradigm of activity, but we see this function as a key element to startup company growth and maturation. In July, we made a presentation to members of the SharesPost platform, where we took a closer look at three private companies: Etsy, Quora and Workday.
The word is that Workday has already filed under the JOBS act, and that Etsy is getting large enough to file if it wishes to. Quora is far away from filing, since it doesn't have a business model, but might be acquired given its unique content, community and quality.
The IPO stock ecosystem had another rough month with an average decline of 6%. The top 10 names were up 28% and the bottom 10 were down 43%. It's anecdotal, but the heavy selling seems to be tapering off while bargain-hunting behavior is coming to the fore.
After being left for dead, Meru Networks (MERU) reported solid second quarter results. Shares jumped from $1.69 to $2.50 after the report, and have seen some follow through to $3.
Thomsom Reuters agreed to acquire FX Alliance (FX) at a nice premium during the month, which sent the shares from $16 to $22.
We've covered ProtoLabs (PRLB) before and have it in the IPO Candy Folio. The company continues to execute well and is liked by investors. Its Q2 results were solid, and shares are trading at an all time high.
GenMark Diagnostics (GNMK) benefited from banker stock coverage, highlighting some strong potential in this little $5 stock.
Although it didn't make the top 5 list gainers, we'd also point out that PetroLogistics was up 20% during the month as investors realized that this recent IPO had fallen so far that dividend yields of 15-20% would be possible. It's a specialty chemical business and there are no guarantees, but this stock offers some potential.
PetroLogistics goes ex-dividend today ($0.26), so the shares should decline by at least that much. We'll have to watch propane/polypropylene spreads into the next quarterly report to know if it's ready for another leg up.
On the losing side of the ledger, the curse of the capital-intensive business model has plagued A123 Systems (AONE), recently leading to the need for substantial new financing for the company to remain alive.
Green Dot (GDOT) hit an air pocket, with quarterly results lower than expectations and forward guidance below consensus. The $40M reduction in projected revenues was enough to send the stock from $23 to $10 -- a loss of nearly $500M in market value.
Weak earnings struck down CafePress (PRSS) as well, this time from $14 to $8, but the stock appears to be heading to further declines. We wrote this one up in March with a mixed review and suggested that investors "wait to see how they develop." The major challenges are very high per-unit prices and questions about how defensible its niche is.
For Calix, it's another quarter and another cut to expectations. The shares changed hands at over $20 a year ago, and are now below $5.
The pipeline remains healthy and might even be better, given the ability of companies to now do "secret filings" under the JOBS act. There are at least a dozen companies in the pipeline in which we will be taking a high interest and providing expanded coverage.
Coverage and the Calendar
We will see new coverage for many recent names in the coming weeks. At the same time, we'll have about a dozen names potentially under pressure as share lockups come off.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.