InvestingDaily.com

Account Information

  • My Account

    Manage all your subscriptions, update your address, email preferences and change your password.

  • Help Center

    Get answers to common service questions, ask the analyst or contact our customer service department.

  • My Stock Talk Profile

    Update your stock talk name and/or picture.



Close

Tech On Sale in the IPO Bin

By Linda McDonough on April 19, 2017

The recent news that long-awaited IPO Cloudera may be priced at a valuation lower than that paid by private investors is big news for the lowly retail investor.

The big data software company recently filed preliminary documents for its IPO. The valuation of the IPO is expected to be between $12-$14 a share. This price compares to the $30.92 that Intel paid for its shares purchased in 2014 and the $17.85 value per share of stock awards granted to employees in March.

This is a remarkable shift. Historically private equity investors injected funds into private companies at such low valuations that huge gains were all but guaranteed when the company went public.

Most institutional investors are accustomed to paying multiples of the price paid by insiders and private equity investors when valuing IPOs. However, the balance of power has shifted. Too many dollars chasing the most desirable tech companies in Silicon Valley have driven valuations up to unsustainable levels.

Technology IPOs were few and far between in 2016. It took four months for the market to warm up enough for the first to get priced. By year end just 21 technology companies went public, down from 29 in 2015, a year considered to be pretty anemic regarding IPOs.

The story was that the “best” IPOs wanted to remain private. Controversial Uber CEO Travis Kalanick has long bragged that he would only take his company public only as “the last resort. Unicorns, private companies, with valuations greater than $1 billion, proliferated in Silicon Valley as private equity and sovereign wealth funds tripped over each other to pony up for funding.

Barrels of private equity funds have been chasing the same group of “hot” private tech companies for some time. Uber, founding father of the popular ride-sharing app, has raised $16 billion as a private company. The most recent rounds of funding value the entire company at $68 billion.

This valuation compares to Amazon, who sported a total valuation of $438 million when it went public in 1997. (The total value of a private company is calculated by dividing the absolute dollars of funding most recently invested in the company by the percentage ownership attached to those funds.)

The history of Snap’s long anticipated March IPO illustrates the market’s malaise with overpriced IPOs. The IPO was priced at $17 and initially burst up to $29.40, only to immediately reverse and settle in at $20.

This is great news for the retail investor. I’ve found many great investments in the IPO bin in the past 12 months for Profit Catalyst Alert subscribers and will be looking for more. Less frothy demand for new issues is forcing private companies to offer good values to IPO buyers.

Stock Talk — Post a comment Comment Guidelines

Our Stock Talk section is reserved for productive dialogue pertaining to the content and portfolio recommendations of this service. We reserve the right to remove any comments we feel do not benefit other readers. If you have a general investment comment not related to this article, please post to our Stock Talk page. If you have a personal question about your subscription or need technical help, please contact our customer service team. And if you have any success stories to share with our analysts, they’re always happy to hear them. Note that we may use your kind words in our promotional materials. Thank you.

You must be logged in to post to Stock Talk OR create an account.

Create a new Investing Daily account

  • - OR -

* Investing Daily will use any information you provide in a manner consistent with our Privacy Policy. Your email address is used for account verification and will remain private.