BloombertTV Interview http://bit.ly/ybtru
based on this blog
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
. 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
. 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 (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
One trick gaming pony from China
Underpriced IPO at 7 times earnings
(3) IPO SIMILARITIES – all three are
. Generate positive cash flow, which means they are not crippled by too much interest and/or overhanging debt re-financing problems
. 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
. 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