Secret's Out: End of Quiet Period Can Be a Chance to Buy In

Here's the latest way investors are playing initial public offerings -- they're using the end of quiet periods.

It's already well known that investors use the end of lockup periods to play stocks. After all, that's when insiders can sell shares, so the assumption is the stock will fall because of the selling pressure. But lockup periods often last 180 days.

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Quiet periods, on the other hand, end 25 days after an IPO. Then two things happen. Underwriters initiate coverage of the company, most often with buy recommendations. And the company starts issuing press releases. The result: The stock frequently jumps, giving it a post-IPO boost. So for many Internet companies, whose stocks routinely decline after the first-day pop, the quiet-period end can present another opportunity for investors to get in.

25-day quiet period expirations
Company (ticker)	IPO date	25 days after IPO
Quintus (QNTS)	Nov. 16	Dec. 11
Virata (VRTA)	Nov. 17	Dec. 12
Korea Thrunet (KOREA)	Nov. 17	Dec. 12
iManage (IMAN)	Nov. 17	Dec. 12
Rainmaker Systems (RMKR)	Nov. 17	Dec. 12
Web Street (WEBS:Nasdaq)	Nov. 17	Dec. 12
Agilent Technologies (A)	Nov. 18	Dec. 13
Alaska Communications Systems (ALSK)	Nov. 18	Dec. 13
MetaSolv Software (MSLV)	Nov. 18	Dec. 13
Retek (RETK)	Nov. 18	Dec. 13
Symyx Technologies (SMMX)	Nov. 18	Dec. 13
Exactis.com (XACT)	Nov. 19	Dec. 14
Intelli-Check (IDN)	Nov. 19	Dec. 14
LifeMinders.com (LFMN)	Nov. 19	Dec. 14
Mediaplex (MPLX)	Nov. 19	Dec. 14
CacheFlow (CFLO)	Nov. 19	Dec. 14
Metron Technology (MTCH)	Nov. 19	Dec. 14
SciQuest.com (SQST)	Nov. 19	Dec. 14
Digital Impact (DIGI)	Nov. 23	Dec. 18
Deltathree.com (DDDC)	Nov. 23	Dec. 18
GetThere.com (GTHR)	Nov. 23	Dec. 18
Management Network Group (TMNG)	Nov. 23	Dec. 18
TeleCorp PCS (TLCP)	Nov. 23	Dec. 18
Official Payments (OPAY)	Nov. 23	Dec. 18
SmarterKids.com (SKDS)	Nov. 23	Dec. 18
OpenTV (OPTV)	Nov. 23	Dec. 18
PNV(PNVN)	Nov. 24	Dec. 19
Knot (KNOT)	Dec. 2	Dec. 27
McAfee.com (MCAF)	Dec. 2	Dec. 27
PFSweb (PFSW)	Dec. 2	Dec. 27
Digimarc (DMRC)	Dec. 2	Dec. 27
Source: Thomson Financial Securities Data, Baseline

For example, Cobalt Networks (COBT), the Mountain View, Calif., maker of Linux-based server appliances that went public on Nov. 5, saw a spike when its quiet period expired on Nov. 30.

That's because underwriters Robertson Stephens, Goldman Sachs, Merrill Lynch and Soundview Technology Group all initiated coverage. Robertson Stephens and Soundview Technology rated it a buy, while Goldman gave it a market outperform and Merrill Lynch gave it a near-term accumulate, long-term buy.

Cobalt did its part, too, issuing a press release announcing a new board of directors. The stock, which had closed at 156 1/2 the previous day, had an intraday high of 172 and closed at 168 13/16. It's now trading around 115.

Webvan (WBVN), which also went public on Nov. 5, saw an increase, too. It had been hovering around 24 before its Nov. 30 quiet-period expiration. But that day, underwriters Robertson Stephens, Donaldson Lufkin & Jenrette, Deutsche Banc Alex. Brown, Goldman Sachs and Thomas Weisel Partners initiated coverage of the stock, mainly with buy recommendations.

That same day, the Foster City, Calif., online grocer announced it had signed leases for distribution centers in Chicago, Seattle, Washington and Dallas. The stock, which closed the previous day at 24 11/16, rose to an intraday high of 31 6/16 before closing unchanged. The stock has since come down, trading around 19 a share.

Investors are starting to catch on. "Most of the smart money knows that 25 days out you typically get a glowing recommendation," says Scott Sipprelle, co-head of Midtown Research, a Manhattan money manager that specializes in newly public companies. "Another reason people like to play these is they say 'Hey, I wonder if they [the companies] will sprinkle something new.' "

But as more investors get in on the quiet-period expiration game, the same patterns that happened with lockups are emerging. Investors anticipating the expiration of the lock can drive up the stock price before the expiration, and the same thing is happening with the quiet-period expiration.

With quiet-period endings, "the pop's started to occur right before, and the stock might actually go down on the day of the expiration," says Tom Taulli, an IPO analyst with internet.com.

One example of this is Expedia (EXPE). Trading in the low 40s, it started rising on Nov. 26 as investors anticipated the quiet period's end on Dec. 5. It closed at 53 1/4 on Nov. 30 and 54 15/16 on Dec. 3, a Friday. On Monday, after its quiet period ended, it closed at 48 3/4.

Some also are using this phenomenon to short the stock.

"People are shorting it two, three, four days in advance of the quiet-period expiration. There are always people trying to play those games," says Randall Roth of Renaissance Capital's(IPOSX) IPO Plus Aftermarket fund.

But it's a tricky game. The quiet-period expiration isn't always a guarantee that the stock will come down again, especially with companies in hot sectors. For example, KPNQwest(KQIP), a data-communication concern, closed at 38 5/8 on Dec. 3, a Friday, a day before its quiet period ended. The following Monday, it closed at 42 1/8 and it has been climbing since. It's now trading around 57.

Warns Roth, "Some stocks roll right through the quiet period. Sometimes it [this strategy] works and sometimes it doesn't."

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