January 15, 2008

Do we need more IPOs? (CY07 Results)

(c) copyright, View From Silicon Valley, 2008.  All rights reserved.



We were already thinking of re-visiting last year's rant against IPO spin when the local paper published this year's IPO results.  Last year's "spin" was that the market "needs" IPOs.  As though investors were running out of securities to buy...

Today's article raised blood pressure around here enough to momentarily interrupt our Florida series.

Today, we'll just start with last year's data (Later this week, we'll look at this year's table):

Company          Date    Price  Raised  Change Value-Chg
Smart Modular  02/03/06   $9.00 $184M    +58%   $106.7M
Cardica        02/03/06  $10.00  $35M    -54%   -$18.9M
Alexza Pharm.  03/08/06   $8.00  $44M    +34%   +$15.0M
Nextest Sys.   03/22/06  $14.00  $76M    -34%   -$25.8M
CPI Int'l.     04/28/06  $18.00 $127M    -17%   -$21.6M
Techwell       06/21/06   $9.00  $50M    +84%    +42.0M
Shutterfly     09/29/06  $15.00  $87M     -7%    -$6.1M
eHealth        10/13/06  $14.00  $70M    -12%    -$8.4M
Globalstar     11/02/06  $17.00 $128M    -21%   -$26.9M
Hansen Med.    11/15/06  $12.00  $75M     -5%    -$3.8M
Affymax        12/15/06  $25.00  $93M     +0.5%   +0.5M

Our conclusion last year was, "11 IPOs with four winners and seven losers," followed by, buying "$10K of each IPO..., your $110K would be up only $2,650, or 2.4%."

Let's update the same table with this year's prices:

                IPO    Today's 
Company        Price    Price   Net
Smart Modular   $9.00   $9.40   +4.4%
Cardica        $10.00   $9.96   -0.4%
Alexza Pharm.   $8.00   $7.62   -4.8%
Nextest Sys.   $14.00  $19.82  +41.6%
CPI Int'l.     $18.00  $14.41  -19.9%
Techwell        $9.00   $9.98  +10.9%
Shutterfly     $15.00  $21.55  +43.7%
eHealth        $14.00  $35.00 +150.0%
Globalstar     $17.00   $8.06  -52.6%
Hansen Med.    $12.00  $25.52 +112.7%
Affymax        $25.00  $22.65   -9.4%

Your original $10K per IPO went from +2.4% at this time last year to +25.1%!  Several of last year's winners now losers.  Investors who re-balanced after our missive got even better results.

                IPO    Jan'07 Today's
Company        Price    Price  Price   Change
Smart Modular   $9.00  $14.22   $9.40  -33.9%
Cardica        $10.00   $4.90   $9.96 +103.3%
Alexza Pharm.   $8.00  $10.07   $7.62  -24.3%
Nextest Sys.   $14.00  $10.85  $19.82  +82.7%
CPI Int'l.     $18.00  $22.85  $14.41  -36.9%
Techwell        $9.00  $17.35   $9.98  -42.5%
Shutterfly     $15.00  $14.38  $21.55  +49.9%
eHealth        $14.00  $22.18  $35.00  +57.8%
Globalstar     $17.00  $13.88   $8.06  -41.9%
Hansen Med.    $12.00  $14.44  $25.52  +76.7%
Affymax        $25.00  $33.50  $22.65  -32.4%

Buying these IPOs after last year's article netted +$14.4%.  Not bad!  Wait for the short-timers and flippers to drop out of the market and then step in.  (Assuming there is some reliable way to time such a strategy.)

Be aware, however, that investing on a cap-weighted basis (or owning a mutual fund that does it for you), may have left you with too much Smart Modular, whose valuation and, especially, self-serving management we criticized last year.

SMOD fell from $14.22 to $9.40 (-33.9%) which would hav put a big dent in any gains.

Last year's conclusion was:
"If there is a gusher tech IPOs coming out in 2007, they will hit the market without any of our hard-earned money."

Next, we'll examine how that strategy fared...