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The Worst IPO Peddling Isn't Social Media

"Biofuels is the worst IPO class in terms of performance. They have all really tanked," said Francis Gaskins of IPODesktop.

"Social media stays up because it has a slew of users who don't understand valuation metrics and these people don't care about valuation and weren't around for the dot.com bust," Gaskins added, explaining why a Groupon (GRPN) might take much longer to bottom out from IPO levels.

The good news is that Ceres IPO delay, and recent pricing disappointments in these IPOs, shows that investors are getting a little more wary.

"Investors aren't buying future promises anymore. These companies can still go public but the price to book value will be a lot less than the investment bankers told them," Gaskins said. "Ceres delayed because they couldn't IPO at the price Goldman told them they would -- Goldman bamboozled them," he added. Though at least, as of yet, it hasn't bamboozled the investing public with the Ceres offering.

Ceres plans to go public next week at a reduced price range of $16 to $17, down from $21 to $23 previously. Gaskins noted that strength in the Dow Jones Industrial Average last April and May allowed IPO underwriters to juice valuations, but now as the Dow is back at a similar level near 13,000, Ceres is lowering its expected IPO value.

Jeff Obsorne, analyst at Stifel, said that the primary risk in this space is that all of these technologies that work great in the test tube or at the demonstration stage don't easily scale to a commercial level on a cost-competitive basis. This was more or less the bottom line in the Amyris revelation this week and its pulling of guidance and scaling back of expansion plans.

The IPOs of these biofuels companies have been predicated on cash flow models built for years out from the IPO date -- as far out as 2014 and 2015. Any time a major milestone on the way to that cash flow model isn't met, all of the IPO assumptions are upset. Amyris's future cash flow was built on a model that assumed its business would scale across a specific number of commercial plants, and now, that assumption is no longer looking like reality.

Investors can still make a quick buck, but it's hard to justify why an investor would buy the next biofuels IPO given the sector's track record.

"The events that Amyris experienced in the last 6 months have a risk of occurring across many of the bioproducts companies that are trading today and the 10-15 that are in registration for an IPO," Osborne wrote on Friday.
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