I think the answer is that the public markets have developed such an appetite for these kinds of stocks, stocks with revenue growth and no earnings, that the owners of the companies recognized a good thing when they got one. While they didn't do outrageous slivers on the IPOs -- nothing below 10% -- they did nothing to tamp the frenzy that's been going on. It is the frenzy that makes me dislike large parts of this market.
Now, I have to figure that these deals will simply be accidents waiting to happen when the follow-on offerings occur.
I think the FireEye (FEYE) deal awoke the fear in me. The deal filed when the stock was at $96, then it was priced $82 and then it broke down to the $60s, and it was like nothing bad happened. That's just the way it was in 2000. We saw secondary after secondary in rapid fashion, all of which were like FireEye: priced high, sold low and then total breakdown with the insiders glad to get something out of their endeavors.
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Keep track of this. It won't happen overnight, as there are many months to go and many lock-ups to expire. But this much supply can hurt the established players -- notice how Salesforce.com has been trading? -- as well as the newbies.
I don't like it.
No two ways about it. Supply can kill the bull. It certainly did back then.
The IPO Window Lets In a Chill
Posted at 11:55 a.m. EST on Wednesday, March 26, 2014
Flat one, froth nothing. That's the score right now in this endless series of games between the parts of the market that are cheap and represent value, and the hyped, the overpriced and the over-loved.
Just take a look at King Digital (KING). Here's a profitable company that has mastered the art of mobile gaming but, arguably, is a one-hit wonder. It's a $6.2 billion company with a stock that immediately broke the print price, meaning it dove instantly below where the IPO was priced.
Now some of that is due to the bankers misjudging the market. Some of it is skepticism from the horrendous Zynga (ZNGA) deal, the last time a big gaming play came public. But most of it is common-sense skepticism, people just being simply unwilling to speculate on just anything. That's the case even though, in an irony of ironies, this company is actually profitable, as opposed to many of the software-as-a-service cloud plays and developmental biotechs that may never have a product that passes FDA muster. So in that sense, you have to recognize that there is some sweet justice here. Zynga is still too fresh in people's minds.
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Too bad that the dot-coms aren't as fresh.
Now I have been adamant that there can't be two markets, a froth market and a stable, flat market. The froth market is made up of marijuana stocks, hydrogen fuel cells, software-as-a-service plays, data analytics businesses and too-young biotechs.