Candy or Bubble Gum?

[This is the full text of our bi-weekly Candygram. See the Candygrams page for the full PDF with more tables.]

The IPO market is humming along pretty well and it’s hard not to notice the continuing emphasis on mobile and Internet technology companies, particularly from China.  The recent pricings and aftermarket performance of Qihoo 360 and 21 Vianet were quite strong.

Three Chinese technology deals are in marketing now – Renren (“Facebook of China”), Jiayuan.com (online dating) and NetQin (mobile technology infrastructure.)  Of the three, Renren is likely to generate extreme interest and should perform like Youku.com (“YouTube of China), which is up 433% from their first six months as a public company.

The enthusiasm has not been limited to just Chinese technology names, as Zipcar is now trading at a 60% premium to their above-the-range IPO price just two weeks ago.

Two additional deals we are doing work on this week are Boingo Wireless, another WiFi play, and RPX Corp., which is creating a new type of service to help companies manage a growing IP and patent problem.

Pricings slowed down a little in May with 7 completed in the first two weeks versus 11 in the first two weeks of April.  But there was an avalanche of 23 new filings versus the typical 10-11 we have been seeing.

Among the filings are many of interest to IPO Candy, including: Yandex (the “Google of Russia”), Zillow (online real estate information), Bankrate (online personal finance), and Envivio (IP video.)

There are several others like Trustwave, BrightSource, Lucid, and WageWorks that deserve at least a look.

Performance

For April the average stock in the IPO Candy Ecosystem was up 4%. The top 10 names were up 41% and the bottom 10 were down 21%.

The best performers for the month tended to be smaller, less well-known companies.  We’ve been fans of the two top performers, Complete Genomics and Sky-mobi, for some time now.

Top 5 for April
Company Ticker Gain Area
Comp.  Genomics GNOM +69% DNA Sequencing
Sky-mobi MOBI +69% Mobile Apps China
Endocyte ECYT +42% Small Molecule Drugs
Ventrus VTUS +39% Anal Treatments
Changyou CYOU +37% China Online Games

On the downside, Demand Media and SemiLEDS continued to slide.  In looking at IPO investments we tend to find that those that get and lose traction are generally less attractive than those that start off very slow but look promising.

Bottom 5 for April
Company Ticker Loss Area
ZST Digital NW ZSTN -49% China Cable EQ
Demand Media DMD -32% Online Content Farm
SemiLEDS LEDS -25% LED Semiconductors
QuinStreet QNST -19% Online Content
Ming Yang Wnd MY -18% Makes Wind Turbines

 

 

 

 

“Lucky Candy” Update

In addition to Sky-mobi and Changyou, the performers included Melco Crown, a casino operator, SouFun Holdings, a real estate portal, and Perfect World, an online games company.

On the losing side, ZST Fuwei Films (of the industrial variety) along with Lentuo (automobile retailer), Qiao Xing (mobile handsets) and Longtop Financial were the worst performers for the month.

Selected Company Morsels

Demand Media continued to suffer as search engines like Google started to push down search results from sites like eHow.com.

Tesla is making waves with their new showroom in San Jose. We may be visiting it next week and will post some comments and pictures if we do.

IPO Candy Folio Update

The IPO Candy Folio was up 5.0% in the first half of April versus an increase of 2.2 % for the Russell 2000.

For 2011 the IPO Candy Folio is up 15.4% versus 10.4% for the Russell 2000.  We have not yet made major adjustments this year but are due for one at this point in the year. Investors will get an automatic update when it’s put into effect.

More information and disclosures regarding the IPO Candy Folio can be found at: http://ipocandy.com/invest.

The Pipeline

We’ve updated the pipeline with the new filings and deals in active marketing that we are following.  As noted, we will be watching Renren, NetQin, Boingo, Jiayuan and RPX this week.

See the updated pipeline table in the IPO Candy Ecosystem for more details.

Coverage and the Calendar

Cornerstone OnDemand was initiated with generally positive ratings and price targets from $21 to $23. Endocyte was initiated with positive ratings and an average price target of $14.50. Gevo received mostly neutral ratings and an average price target of $21. Fluidigm initiated with positive ratings and a $19 PT.  AcelRx was initiated with a PT of $7 after a very weak IPO. The company filed at $12-14 but priced at $5.

During the first half of May we are expecting coverage for ServiceSource, Qihoo 360 and Transzyme.

Lockups are coming off for Complete Genomics and Inphi so investors should beware near-term weakness in those shares this month.

[Attached please find our IPO Candy Ecosystem Overview, Performance and Pipeline tables.]

[Disclosures: None]

  • China’s Facebook Copycat Attracts Investors Despite Big Risks (huffingtonpost.com)
  • Renren Lowers Key User Figure Before IPO (online.wsj.com)
  • Renren, RPX Battle for Spotlight (online.wsj.com)
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