A Tale Of 2 Secondaries

Includes: DDD, SPLK
by: Stone Fox Capital

In a world of constantly changing financial data and press releases, investors need to be able to interpret the differences between two seemingly similar announcements. Over the last couple of weeks, two hot technology companies announced public offerings with completely different implications to shareholders.

First, 3D Systems (NYSE:DDD) announced a $100M secondary on June 12th with proceeds to be used by the company to finance acquisitions and working capital. Second, Splunk (NASDAQ:SPLK) announced a $300M secondary on June 27th where existing shareholders are selling shares with no proceeds going to the firm. The benefit to shareholders is the increase to the public float.

Notice that both scenarios involve insiders of the company with major shareholders or management concluding that the stock is an attractively priced currency to utilize. One wants to utilize the cash to grow the business while the other wants to cash out and exit the business.

3D Systems Details

In the case of 3D Systems, management needs the cash in order to consolidate the industry via acquisitions that give the company a competitive advantage. The implication is that owners of acquiring firms don't want shares of DDD so the company needs cash to complete the deals. Either way shares would be issued. Now it could've borrowed cash, but the price of the stock is at attractive levels.

The underwriters exercised the over-allotment, so the company ended up issuing 4,151,000 shares at $27. The net proceeds to the company were $106.8M with the close on June 19th. The first day after the pricing of the secondary the stock traded as low as $27.49 and closed at $28.78. The stock has since steadily climbed to close above $36 today or a new all time high.

Obviously, this secondary would've been a great buying opportunity though any new investor at this point must be careful to not chase with the price up over 30% from the offering.

Splunk Details

In the case of Splunk, the deal is ominous with major shareholders willing to cash out around 11% of the outstanding stock. Note that while the stock trades significantly above the IPO price of $17 it is currently trading at the post IPO lows below $29. It traded as high as $37.57 back in May.

Since insiders are selling and not the company, the deal isn't dilutive or impacting to existing shareholders as far as ownership. Rather, the willingness to unload so many shares significantly below the recent highs suggests that upside might be tapped out already.

The insiders might decide to cancel the secondary if pricing remains weak. Until we get more clarification on the deal, the stock price will likely falter as it did this week, trading down in an up market.


Naturally, it is unclear whether the Splunk secondary will be exercised or at what price. No expectation should exist that this stock will have a similar run as 3D Systems after its secondary considering the different facts. Back after Splunk's first earnings report as a public company in early June, we wrote [see Splunk Gets Splattered On Earnings] that more selling pressure was likely. This secondary adds more fuel to that theory of future weakness.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.