This week looks to be the busiest week in the IPO market in perhaps 1.5 years; 2 names struck my interest in particular as highlighted in this CNBC Fast Money clip as the names fall into the sphere of sectors we have been overloading: Calix Networks (CALX) and MaxLinear (MXL). The latter was also highlighted by Mr. Cramer on Mad Money so certaintly to get the lemming pop and be overvalued right out of the shoot. IPOs are certainly one area good sized institutions can really make some easy money as generally any good company is priced at a level that the institutional investor can make mad money by dumping the shares to the retail investor and generating very good gains in a matter of minutes. More difficult to get onto this gravy train as a small institution - generally the IPOs are handed out as thank you notes to the top clientele. This is one area I will hopefully one day be enjoying the fruits of...
Via Mad Money re: MaxLinear (7 minutes)
- MaxLinear is expected to hit the market on Wednesday and will trade under the symbol MXL. The company designs high-performance, low-cost radio-frequency chips that capture and process broadband signals. This allows us to watch broadband video on cable boxes, digital TVs, mobile phones, computer-vehicle displays and other networks.
- Out of the $65 million expected to be raised in the offering, just $15 million is going to selling shareholders—none of them executives—and $50 million is going to the company to fund growth. (that's actually a lot better than many deals, where the whole point of the IPO is simply to pay back debt that a private equity firm has laden in their special magic deal making.... or for insiders to unload all their shares... at least MaxLinear is getting some money out of the deal)
- Panasonic is its biggest customer at 23 percent of revenues, and its top 10 customers made up 83 percent of sales in 2009.
- The company predicts that its operating margin—the amount of profit it gets from every dollar of sales before taxes and interest payments—will eventually go from 11 percent in 2009 to 20 percent. Even better, MaxLinear’s balance sheet has $61 million in cash and no debt.
I still need to do some digging into both the names, but I expect the hype machine to blast both these type of names to the stratosphere and take the valuations into the nonsense zone. So these will most likely be pure play momo plays since growth at a reasonable value will be destroyed within the opening seconds of trading. Now, if you are an institution you are more than happy with this because as a your friendly local mutual fund, hedge fund, pension fund, et al - you have a winner within seconds and can pump up your yearly return with a steady flow of (well hyped) IPOs. MaxLinear is supposedly set to earn around half a dollar this year. If so - being a hot IPO in a sexy sector - one can see the retail investor flying into this name and paying any price, so I would not be surprised to see a 40x forward PE (or more) which would get the name near $20.
We are now entering a stage I can see mimicking some of the justification of values we saw in 1999; as they say if you stick around long enough you begin to see history repeat/rhyme. Back then you justified buying something insanely valued by pointing to something else that was even more insanely valued. For example... I am going to get myself some Global Crossing, this thing is dirt cheap at 190x earnings! Lycos is at 280x, so it's a bargain! That of course assumed stocks had any earnings - even better if they did not, because then you could value the stocks on number of eyeballs that visited the website. This time around as Ben mimicks Alan's Y2K solutions to all problems, we can have the fun in every sector - not just tech. For example Hey I am so lucky to buy MaxLinear at 60x earnings because its growing at a fast rate! I mean, that 12% grower in retail is being bid up at 43x earings, so this is a steal!
If you think I am being facetious check out the valuations of some of the IPOs, and that is before the lemming nation of retail investors jumps in and bids some of these up 30-50% up on day 1 because Cramer blessed the stock.
Via Bloomberg more information on this week's slate. We are also getting our first bank IPO since 2007.
- The rebound in U.S. stocks is allowing the first bank to hold an initial public offering since credit markets started to freeze in 2007 and two technology companies to seek premium prices in share sales. First Interstate BancSystem Inc.’s IPO will value the lender at 30 percent more than the industry median for net tangible assets, data compiled by Bloomberg show.
- Calix Networks Inc., which sells connection equipment to telephone companies, may offer shares for as much as 36 percent more than its “fair value,” according to a prospectus. Petaluma, California-based Calix became profitable last quarter, posting net income to common stockholders of $2.14 million as revenue rose 25 percent.
- Calix, which sells equipment and software that connects homes and businesses to their telephone companies, lost money since it was founded in August 1999. Its products help determine the amount and speed of voice, data and Internet services that customers are able to use. “Profitability hasn’t been there,” said Paul Bard, director of research at Greenwich, Connecticut-based Renaissance Capital LLC, which has followed IPOs since 1991. “The key to their pitch is how much will investors buy into their story of profitability through revenue growth.”
- MaxLinear Inc., a designer of semiconductors used in mobile devices, is seeking buyers at more than double what its largest competitors command. (now to be fair, these companies are being compared to larger, slower growth peers in many cases i.e. a Broadcom (BRCM) - hence it is not pure apples to apples)
- The offering will value MaxLinear at $353 million, based on 29.43 million outstanding Class A and Class B shares. The market capitalization is about 46 times earnings of $7.67 million over a full year, based on income in the most recent quarter
- MaxLinear, which plans to raise $70.7 million, posted a profit last year for the first time in at least five years as sales increased 64 percent, its filing showed. The Carlsbad, California-based company designs semiconductors that allow people to watch television over their mobile devices.
- “You are beginning to get some resumption of confidence in the markets,” said Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. “You can’t talk about bringing an IPO in a desolate environment, and this is very much the opposite of that situation.” The IPO will be the first for a U.S. bank since Houston- based Encore Bancshares Inc.’s initial sale in July 2007, less than a month before the start of the credit crisis that led to almost $1.8 trillion in losses and writedowns at the world’s biggest financial firms.