Pre-Paid Cards Hit the Market
In last Friday's issues of Small Cap Investor Daily, It's All About Tech, we reviewed three tech IPO's that were hitting the major exchanges. We'll revisit those companies today for an update, but first I'd like to alert you to one more IPO set to launch any day. This little company could be a gem for investors, so it's worth your attention.
Last week we checked out Smart Technologies Inc (Nasdaq: SMT), the maker of interactive technology products like its popular whiteboard. The company went public at $17 per share, smack in the middle of its proposed $16-$18 range. The stock closed at $16.27 yesterday, 4.3 percent off its initial offering price. I like this company, but would wait for a bigger pullback if you're thinking of buying shares.
Qlik Technologies Inc (Nasdaq: QLIK) also went public last week. Qlik's software is all about efficiency, a popular solution these days as companies strive to be as efficient and effective as possible in a slowing economy.
Qlik offered 11.2 million shares of stock to the public at $10 per share - above its previously anticipated range of $8.50 - $9.50. As of yesterday's close, Qlik's stock was trading at $13.88 per share, up a whopping 39 percent from its initial offering price! We'll see if this stock can hold these gains - at this price level it wouldn't be surprising if early investors decided to book some gains.
RealD Inc. (NYSE: RLD) was the third tech IPO last week. This is a company that supplies glasses and projectors to 3-D cinema screens and it is the leading licensor in 3-D technology.
The company hit the market at an optimum time given the surge in popularity of 3D movies. Around 67% of Avatar's total domestic 3D box office through May 2010 was generated on RealD-enabled screens. RealD's stock price closed at $18.41 yesterday, up 15 percent since the initial offering price of $16.00.
***What's the takeaway message from these early results? Scott Sweet, senior managing partner at IPO Boutique, says the big gains in Qlik and RealD were "...a sign of very solidly placed IPOs". He continued talking about the companies, "Excellent top-line growth, decreasing losses or improving profits as well as very low debt and exceptional business models".
Investors clearly agree, and while I think that a pullback in these stocks' share price is imminent it's great to see the IPO market continuing to improve.
***Another potential winner set to go public this week is Green Dot Corporation. The company will trade under ticker symbol (NYSE: GDOT).
Green Dot is the leading provider of reloadable prepaid credit cards in the United States. With millions of Americans frustrated with banking costs and overdraft fees, the company offers an attractive alternative - yet still allows card holders to avoid carrying cash for everyday purchases. The company sells and reloads cards at around 50,000 retail stores including Wal-Mart (NYSE: WMT), Walgreens (NYSE: WAG), and 7-Eleven.
According to Thomson Reuters, Green Dot received 63 percent of its total operating revenue in the first quarter from Wal-Mart. What's more, Green Dot recently renewed its contract to distribute prepaid cards in Wal-Mart stores until 2015. I think that this is a great partnership for Green Dot. With millions of people looking to shave costs wherever they can, offering pre-loaded debit cards at the world's least expensive retailer is a great strategy.
Originally, the company was offering 3.9 million shares in its IPO, but it recently increased that number by 8 percent to 4.2 million shares. Green Dot has maintained its price range of $32 to $35 a share.
***The IPO might see stronger than expected demand because its timing coincides with the passing of the financial reform bill, which exempted prepaid cards from being charged fees. This decreases costs for those who can least afford them.
As a result of new legislation threatening banks' revenues, banks may start charging customers extra fees for using debit cards. This move could give a competitive advantage to issuers of prepaid cards, including Green Dot.
The company has shown strong top-line revenue growth and year-over-year operating revenue increased by 101 percent in 2008 and by 40 percent in 2009.
The company turned a profit last year and is looking to turn an even bigger profit this year. In the first quarter of 2010 alone, Green Dot had net income of $4.4 million, compared to $8.2 million in all of fiscal 2009.
***Note that if you are looking at Green Dot's historical financials that the company changed its fiscal year-end from July 31 to December 31" on September 2009. As a result, historical comparisons get a little messy, unless you adjust for the change.
Taking this change into account, the company's total operating revenue for the second quarter in 2010 is expected to be between $86.5 and $90.5 million, an increase of 38 to 44 percent over the quarter ending June 30, 2009.
***The timing for Green Dot's IPO could be particularly good. In addition to strong organic growth, the prepaid-card market is growing at a rapid rate.
Below is a chart from Mercator Advisory Group's Sixth Annual Prepaid Market Assessment. "Closed" cards refer to merchant gift cards and prepaid telephone cards while "open" cards can be used at retail stores and for withdrawing cash from an ATM.
Source: Mercator Advisor Group
The chart shows total dollars on pre-paid cards growing by well over 10 percent annually for each of the years between 2004 and 2008 (more recent data was not available).
***Last week I touched on the importance of finding IPOs with positive growth outlooks, and Green Dot certainly falls into this category. However, I also pointed out that insiders selling shares is not always the best-case scenario for companies going public since they may not gain access to as much growth enabling capital. And in this particular situation, Green Dot will not receive any proceeds from its IPO. At the same time, the company is flush with cash, $103 million to be exact, and has no long-term debt so it is in pretty good shape.
We'll see how the stock performs as investors try to put a value on shares. According to IPOdesktop.com President Francis Gaskins, Green Dot has a PE ratio of 38 based on the midpoint of its pricing range.
I expect investors will be attracted to the company's strong growth outlook, solid financials, and positive industry trends. I'll give you an update once shares hit the market.
