Three Technology IPOs Your Broker Doesn’t Know About
In yesterday's article of SCI Daily- It's All About Tech, I discussed one of the hottest sectors in today's market - technology. Odds are, your broker doesn't know too much about companies in this sector that just went public - no one really does. So we've been doing our homework to try and find some hidden value in these technology IPOs.
Yesterday we checked out SMART Technologies (Nasdaq: SMT) and the company's cutting-edge interactive whiteboard that is poised to revolutionize interactive education.
Yesterday, SMART Technologies went public at $17 per share, smack in the middle of its proposed $16-$18 range. The IPO raised over $660 million, although SMART Technologies will collect only 20 percent of the total proceeds, around $141 million. The chart below shows how all the cash gets divided.
Incidentally, Intel (Nasdag: INTC), a firm that had a blowout quarter, was one of the biggest shareholders. They sold 10 million of their 26.5 million shares, netting the tech giant around $170 million. Not bad for a day's work!
Applying last year's net profit margin of 22 percent (note that this reflected a big foreign currency gain), and a two year historical average revenue growth rate of 31 percent, I would expect 2011 revenue to be in the neighborhood of $849 million, and net profit to be around $186 million.
Checking SMART Technologies' prospectus, there will be 124 million shares outstanding after the IPO, so 2011 earnings per share should be around $1.50. That means the stock is trading at 11-times next year's earnings - an attractive valuation for a high-growth tech stock.
I'll keep an eye on SMART technologies, and I'd recommend doing your own pro-forma financial modeling like I've just done if you're considering a potential share purchase.
SMART Technologies is one of three highly anticipated tech companies to go public over the last two days. Let's take a look at the other two - it's their turn to keep the ball rolling.
***The first is Qlik Technologies Inc, now trading under the ticker symbol (Nasdaq: QLIK). Qlik's software is all about efficiency. Companies strive to be as efficient and effective as possible, especially in a slowing economy. After reading through the company's prospectus, I now have a more thorough understanding of the company's business model and growth strategy. Let's take a look.
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. At this price, the company raised $112 million in the offering.
Qlik plans to use $6.1 million of the proceeds to pay off some of its outstanding debt, and the accrued interest on that debt. The company is also looking to use some of the cash to grow its business in the U.S. while expanding globally in China, Russia, and other developing countries. So far, I like what I see - this company looks to be balancing fiscal responsibility with growth initiatives.
The company is trying to turn around a trend of decelerating growth. Revenue growth fell from 82 percent in 2007 to 47 percent in 2008 to 33 percent in 2009. While I'd rather see accelerating growth, not all good companies can accomplish this - especially during a recession. And this company is still growing, which is good.
If the trend continues, I expect revenue growth in 2010 to be 21 percent, meaning total revenue of $190 million compared to last year's total of $157 million. I think that's extremely conservative.
Keep in mind that 73 percent of Qlik's revenue comes from international sales, which means foreign exchange rates will significantly affect the company's net income. This is also the case with SMART Technologies, a company that swung form currency conversion loss in 2008 to a gain in 2009.
I like the business efficiency space that Qlick competes in, and we'll keep an eye on this one as it hits the Nasdaq. While it's not my favorite IPO this year, it's worth watching.
***A company that is more likely to see shares rally is RealD Inc., the third tech company going public this week, under ticker symbol (NYSE: RLD). This company is the real deal to be sure, and is hitting the market at an optimum time given the surge in popularity of 3D movies.
RealD supplies glasses and projectors for 3-D cinema screens and is the leading licensor in 3-D technology. Around 67% of Avatar's total domestic 3D box office through May 2010 was generated on RealD-enabled screens. Imagine seeing James Cameron's Avatar in 2-D, it just wouldn't be the same experience. RealD is drastically changing viewing experiences, and while we have yet to confirm 3D is more of a long-term trend than just a fad, this company is wise to go public right now.
The market leader for 3-D technology bumped up the number of shares offered to the public by 16%, to 6.96 million. Add in 4.75 million shares from existing shareholders and you now have 12.5 million shares to choose from. The estimated offering price was between $13-$15 per share, but high demand means $16 was the final price. The company expects to net around $110 million.
We're already seeing a move from traditional movies to enhanced, 3-D movies (a shift from analog to digital). Hollywood has invested heavily in 3-D movies, and there are 23 3-D movies being released in 2010 compared to 13 last year.
To meet growing demand RealD spent 2007 and 2008 growing its number of RealD-enabled screens from 1,173 to 2,108 - an 80 percent increase. And they aren't slowing down. In 2009 the number of 3D screens increased 152 percent to 5162. Whether it is movies or TVs, the shift from 2D to 3D is revolutionizing viewing experiences worldwide, and RealD is cashing in.
The company has had tremendous growth over the last few years, with revenue growing 70 percent in 2008 and 277 percent in 2009. The question is - can this rising star sustain growth over the long haul? Or is this going to be like another 80s movie that fades into oblivion?
There certainly is potential for RealD. The company already has an advantage in the 3D-technology industry. As of June 1, 2010, RealD estimated that it had more 3D screens than all of its competitors combined - nearly 6,000 3D screens in 51 different countries.
The surge in popularity of 3D makes this a risky bet to jump in on early. Already today shares are up around 20 percent. Don't chase here, let things settle down first.
All three of these newly public companies, SMART Technologies, Qlick, and RealD, have potential to be great investments. But remember what I've been saying for the last week - these companies want to go public when they can get the highest possible price for their stock.
That means jumping in early is a risky move - often times the share price of IPO's will plummet back to the IPO price, or below.
Take your pick between these three IPOs - and read through the prospectus of your favorite. There will be time to buy if you like what you read. All three are entering a strong technology sector and have the potential to do well in coming months.
