Do we need more IPOs? ('08 Edition)

January 17, 2008

Do We Need More IPOs? ('08 Edition)

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

Discussion of IPOs in Silicon Valley is never-ending. You need major capital to pony up for one of our $750K (and up!) houses and cashing in a big stock option is among the quickest ways to "solving" your housing cost problems in Silicon Valley.

The local paper published a seemingly-useful table of local companies who went IPO this past year. They even used a couple of the additional columns we added to the table they published at this time last year.

However, there were several obvious, and very relevant, differences from how we prefer to structure the data:

1) The IPO companies were published in alphabetical order rather than by date of issue

+We expect "dollar size of offer" or "market cap" as more useful sort criteria.

2) Despite publishing on January 13, 2008 the "current" price was only as of December 26, 2007.

+Maybe December 31, or even December 29, 2007 is a reasonable cut-off if the goal was to measure CY07 performance. Using December 26 opens you up to questions of back-dating for a better price.

3) The amount of the IPO is omitted.

+Isn't the point of an IPO supposed to be generating capital for the company in question? Maybe if I had an MBA, I'd be more sympathetic to the urgent needs of VCs (and Larry Ellison) to cash out, even at the expense of the subject company...

The paper goes on to tout the VMWare IPO as the biggest since Google. While this is true, it seemed like most press reports focused on how much money Larry Ellison made on the deal. It's not clear how much gain the outside investors made after Larry and the VCs got theirs.

Offer 12/26/07
Company Date Price Price Net

3PAR 11/16/07 $14 $10.06 -28%

Accuray 02/08/07 $18 $16.73 -7%

Aruba Ntwks 03/27/07 $11 $13.58 +23%

ARYx Thera. 11/07/07 $10 $8.52 -15%

BigBand Ntwks 03/15/07 $13 $4.37 -66%

BioForm Med. 11/07/07 $8 $6.55 -18%

Cavium Ntwks 05/02/07 $13.50 $19.36 +43%

Data Domain 06/27/07 $15 $21.94 +46%

DemandTec 08/09/07 $11 $16.50 +50%

Glu Mobile 03/22/07 $12 $5.02 -56%

GSI Tech. 03/29/07 $5.50 $2.61 -53%

Infinera 06/07/07 $13 $11.51 -11%

Jazz Pharm. 06/01/07 $18 $14.64 -19%

Map Pharm. 10/05/07 $12 $15.03 +25%

NetSuite 12/20/07 $26 $27.28 +5%

NeurogesX 05/02/07 $11 $5.71 -48%

ShoreTel 07/03/07 $9.50 $5.09 -46%

SuccessFactrs 11/20/07 $10 $9.26 -7%

SuperMicro 03/29/07 $8 $9.06 +13%

Veraz Ntwks 05/05/07 $8 $5.08 -37%

VMWare 08/14/07 $29 $74.50 +157%

Xtent 02/01/07 $16 $8.60 -46%

(Editor's note" The paper used "offer price" to calculate net changes even though they also reported "pricing range" and "first day close.")

Following a discipline of $10K per IPO, you would be -4.3% across the 22 stocks. If you missed VMWare at the IPO price, which seems probable given its explosion from $29 to $51 on the first day, your net is -11.5%.

The paper also touts:

4) 2007's 22 IPOs as twice the 11 new stocks in 2007

+We submit this more indicative of a rush to cash out than a sudden plethora of new and unique products and ideas hitting the market.

5) "half of the offerings were priced at or above the top of their estimated price range."

+This point is, at best, irrelevant to outside investors. Pricing at the high end of, or above, "estimated price range" puts money in the pockets of the VCs and insiders. For the most part, this money comes out of the pockets of outside buyers.

6) In fairness, even using their "back dates," the paper concedes only eight of 22 stocks were still above their offer price.

OK, we've heard your complaints but how would you do it differently?

We're glad you asked!

First, we would sort the IPOs by offer date, rather than alphabetically. If there's a trend in timing of these IPOs, such a sort would probably show it.

Second, we would use prices from the last trading day before the data was published instead of a seemingly-arbitrary December 26, 2007.

Here's what you get:

Offer 12/26/07 01/11/08
Company Date Price Price Price Net

Xtent 02/01/07 $16 $8.60 $8.35 -48%

Accuray 02/08/07 $18 $16.73 $17.83 -1%

BigBand Ntwks 03/15/07 $13 $4.37 $4.40 -66%

Glu Mobile 03/22/07 $12 $5.02 $4.55 -62%

Aruba Ntwks 03/27/07 $11 $13.58 $12.33 +12%

GSI Tech. 03/29/07 $5.50 $2.61 $2.70 -51%

SuperMicro 03/29/07 $8 $9.06 $8.81 +10%

NeurogesX 05/02/07 $11 $5.71 $5.30 -52%

Cavium Ntwks 05/02/07 $13.50 $19.36 $21.90 +62%

Veraz Ntwks 05/05/07 $8 $5.08 $5.08 -37%

Jazz Pharm. 06/01/07 $18 $14.64 $14.75 -18%

Infinera 06/07/07 $13 $11.51 $11.01 -15%

Data Domain 06/27/07 $15 $21.94 $21.71 +45%

ShoreTel 07/03/07 $9.50 $5.09 $5.85 -38%

DemandTec 08/09/07 $11 $16.50 $15.38 +40%

VMWare 08/14/07 $29 $74.50 $77.53 +167%

Map Pharm. 10/05/07 $12 $15.03 $13.80 +15%

BioForm Med. 11/07/07 $8 $6.55 $6.04 -25%

ARYx Thera. 11/07/07 $10 $8.52 $8.73 -13%

3PAR 11/16/07 $14 $10.06 $15.75 +13%

SuccessFactrs 11/20/07 $10 $9.26 $8.88 -11%

NetSuite 12/20/07 $26 $27.28 $25.85 -1%

Obviously, there was "volatility" in the market and in these stocks since December 26. Even though the Dow fell from 13,551 to Friday's 12,606 (-7.0%), the "net" on these stocks is now slightly better today at -3.4% (-11.0% ex-VMWare) than back in December.

Conclusion:

This time the actual news is not worse than shown by our slicing of the data. However, just like 2006 IPOs, both slices of the data show outside investors did not fare particularly well buying 2007's local IPOs.