Mark's IPO Dream
Liz is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It's 7 pm PST on 1601 Willow Road in Menlo Park, Calif., and the sun is setting on the corporate headquarters of Facebook. And in those offices, a young man named Mark who's been working late opens up the windows and lets the warm breeze waft in and caress his face. It's been a long day for him, and bathed in the amber glow of the setting sun he begins to feel sleepy. So he sits back down in his padded leather chair at his big mahogany desk and lets his eyes close. His chin drops down toward his chest, his breathing slows, and he musters one last glance at the NASDAQ ticker running across his computer screen. His mind starts to wander and a song begins to play in his head ("Daydream" by the Lovin' Spoonful ... well, sort of.)
"What a day for a day dream,
What a day for a day dreamin' C-E-O.
And I'm lost in a day dream,
Dreamin' 'bout my IPO dough."
He opens up his eyes in time to see the final stock price flash across the screen, and with that he smiles. Facebook closed at $70/share, just as he thought it would. With an IPO price of $38/share, the stock was up over 79%. He relaxes to watch the financial story to follow, entitled "Noteworthy IPOs of 2011 and 2012." The show features GNC Holdings, Tesoro Logistics, Spirit Airlines, and Facebook. It begins:
GNC Holdings (NYSE: GNC) This vitamin holding company does roughly 80% of its business in vitamins, herbs, minerals, and sports supplements and is heralded as an IPO star. After going public in April of 2011, GNC embraced its challenges head-on and redesigned their marketing to target women as well as aging baby boomers. And in an industry with shrinking margins, GNC grew their own brand and product lines to become more profitable. They strengthened third-party vendor relationships, eking out more profit and annuity business, and have been successful at upping at-register transaction amounts. Currently GNC (as of Aug. 3) has a $4.18 billion market cap, sales growth of 19.4% and EPS growth of +145%. Although total debt to equity of 88.3x is high, with a current ratio of 3.0x and a quick ratio of 1.1x that level is more acceptable.
What's been so compelling about GNC has been its consistent over-performance of earnings versus estimate. From June of 2011 until June 2012, earnings have outpaced estimates by an average of 20.2%. No wonder the stock price has risen admirably, closing at $39.21 per share, up 245.2% from the initial filing price of $16.00.
Tesoro Logistics (NYSE: TLLP) is a crude oil and refined products logistics assets company whose IPO filing price last April 2011 was $21.00 per share. Since that time, the price has ballooned 83.9% to $38.62/share at the close on Aug. 3, and for the past 52 weeks TLLP price performance has greatly outpaced the industry group by almost 100% on average. TLLP has a market cap of $1.2 billion, EPS growth of 305.6% and sales growth of 332.0%. Total debt to equity is 47.3x, with a quick ratio of 2.9x. Debt to capital is 0.3x and payout ratio is 65.6. TLLP has missed some quarterly earning projections though, but did meet them in Q1 2012 and are expected to meet or exceed for Q2 (which will be announced on Aug. 6.) Overall to date, TLLP is touted as a successful IPO.
Spirit Airlines (NASDAQ: SAVE) is a low-fare airline based in Florida that aims to serve markets (in South Florida, the Caribbean, and Latin America) that have been historically under-served by competitive airlines. Spirit competes by having some of the lowest operating costs in the industry, driving demand among leisure travelers with super-cheap fares, and unbundling services to drive profits a la carte. The company has a market cap of $1.5 billion, a PE of 13.5 and EPS growth of 12.7%. Sales have grown 25.5% (last four quarters), and the company has total debt to equity of zero and a quick ratio of 1.5x. This stock is a strong favorite among analysts, and it share price at close on Aug. 3 was $20.49, up 70.8% from its May 2011 IPO price of $12 per share.
Faceboook Inc. (NASDAQ: FB), the world's largest social networking site, raised $16 billion with its IPO on May 17 and a filing price of $38 per share. This IPO was an exciting win for everyone -- the media, the shareholders, and even the state of California which benefited immensely from the wealth and spending of all the Facebook-made, California-based millionaires. And although the IPO had an initially bumpy start (pesky ol' NASDAQ technical problems), the stock has rebounded exceptionally well with advertising revenues exploding and share price climbing higher every day....
BUZZ, BUZZ, BUZZ! A text message arrives on Mark's iPhone and stirs him out of a deep sleep. He awakens abruptly, the repetitive song in his head stops playing, and he realizes that he's been dreaming. Was it all just a dream he wonders, and then he reads the text: "Facebook shares reach a new low on Friday, Aug. 3 of $19.82 per share." Mark drops his head again, but this time it's to bury his face in his hands. He takes a deep breath, brushes back a tear, and recalls the inspirational words of Walt Disney: “No matter how your heart is grieving, if you keep on believing, the dreams that you wish will come true.” These words serve to comfort him, as he does believe that somewhere out there on the time horizon of good fortune, Facebook will indeed reach $70/share.
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