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Skype-hype from eBay & more about the IPO market

|Includes:AMZN, APEI, APOL, BBBB, BKS, BPI, CECO, COCO, CPLA, CYOU, DV, EBAY, EDU, ESI, LINC, Rosetta Stone Inc. (RST), STRA, SYMC

Skype-hype from eBAY & the IPO Market
(1) EBAY’s Skype-hype, not seen since Google
Skype-hype message to Wall Street – eBay focuses on core business
. Top line revenue -- because of encroachment  by Amazon & others.
. Balance sheet -- to convert a soft asset into hard dollars
eBay is pre-conditioning the IPO market, very much pre-IPO.  Similar to what Google did.  That ploy only works for large, heavily branded companies, who can get away with it, not smaller emerging companies.

WHAT DOES SKYPE-HYPE MEAN?
When a well-known force (eBay) starts to pre-condition the IPO market for a division spin-off -- in what is basically an IPO vacuum -- then that’s a sign of an expected much stronger IPO market.

(2) Three successful IPOs this month, and all are up
ROSETTA STONE
. Popped 40$ yesterday, up again today
. Generates good cash flow, public market segment leader
. Understandable growth plan includes overseas expansion – 95% of sales now are in the US
. High branded consumer awareness

BRIDGEPOINT EDUCATION
. 30% haircut in IPO price, rose a little from reduced IPO price
. Lots of sector headwinds in the post-secondary online education market segment
. Questions about the market leader Apollo (NASDAQ:APOL) accounting practices sunk the segment since Feb 1
. APOL itself touched almost $90 in early Feb then sank to almost $60 this month.
. The bloom is off the rose in the online post secondary education sector

CHANGYOU
One trick gaming pony from China
Underpriced IPO at 7 times earnings

(3) IPO SIMILARITIES – all three are
. Profitable
. Generate positive cash flow, which means they are not crippled by too much interest and/or overhanging debt re-financing problems
. Computer-related
. Have high gross margins: Changyou (93%), Rosetta Stone (87%), Bridgepoint Education (71%)

(4) IN GENERAL, WHAT DOES IT MEAN?
Investors are now very much aware of IPOs, especially because of Rosetta Stone’s success and because of eBay’s ‘Skype-hype”

Up until sometime in March many investors simply did not want to hear about IPOs.  But if investors think they can look forward to getting in on a potentially ‘in demand’ (hot) IPO from Skype then they will also look at other IPOS in the meantime.

(5) IPO CRITERIA
Right now (and this applies to Skype, also) a successful IPO appears to need
. High gross margins
. Top line revenue increases going into the IPO, with a believable growth plan for top line revenue
. Profits
. Positive cash flow
. Very little overhanging debt

In other words, back to basic investing principles.  Because ‘pie in the sky’ dreamy prognostications.have no credibility in this market.

(6) IPO PIPELINE
. Not too much in the pipeline right now
. However, there are many companies standing outside & looking into the IPO window.   Those that have a good March quarter and meet the above criteria (#5 above) may be able to step through the window and actually IPO
.  If their March quarter numbers good and if they push it, it is possible qualified companies can IPO by the end of the second quarter, June 30, 2009 or shortly thereafter.
. The summer IPO season ends the second week in August, so I expect to see some interesting IPO filings in the next month or so.

Disclosure:  no positions