Back in the Candy

[This is the text from our April 19th Candygram. The full report with tables is available under the “Candygrams” tab.]

We wrote about a “resurrection” of the IPO market at the start of the month and we’re feeling “prophetable” right now (sorry!)  We had a number of solid pricings and good after-market trading on deals we’re following, like Zipcar. The global markets remain somewhat uncertain but investors are prepared to invest in new ideas.

There were 11 deals priced in the first two weeks of April and 11 new filings. The market is very active and we are doing some work on Renren, Responsys, Boingo and NetQin which are all in active marketing right now.

Performance

For the first half of April the average stock in the IPO Candy Ecosystem was flat. The top 10 names were up 18% and the bottom 10 were down 15%.

Among the top five performers, three were based in China and related to the Internet. Although Youku.com receives widespread coverage, many small names like Sky-Mobi have performed very well and are beginning to get more recognition as being genuine growth companies.  If they continue to execute they will find more institutional support.

Complete Genomics has been a “sleeper” since they did their IPO.  It’s been quiet until recently and is up 50% from the IPO price.

Top 5 for First Half April
Company Ticker Gain Area
Comp.  Genomics GNOM +39% DNA Sequencing
Youku.com YOKU +23% IP Video in China
SouFun SFUN +22% Real Estate Portal
GenMark Diag GNMK +19% Molecular Diag
Sky-Mobi MOBI +18% Mobile Apps China

SemiLEDS seems like a good company but they continue to struggle with commodity pricing in the LED market.

Bottom 5 for First Half April
Company Ticker Loss Area
SemiLEDS LEDS -27% LED Semiconductors
Demand Media DMD -19% Online Content Farm
ZST Digital NW ZSTN -14% China Cable EQ
ChinaCache CCIH -14% China CDN
Gevo GEVO -13% Renewable Fuels

 

 

 

 

Demand Media reported results that didn’t excite investors and resulted in some analysts lowering price targets for the shares.  As we wrote in our “crapification” research note[1] on Demand Media, their business model is very attractive financially but vulnerable to changes in search rankings, which has again become a popular topic.

“Lucky Candy” Update

Two small and obscure companies that came public back in 2007 had major gains in April. WSP Holdings was up 30% and Noah Educational was up 27%. (Both are still down 80% from their IPO prices.)  WSP Holdings basically makes pipes. Noah Educational is a bit more interesting in that they make educational learning devices. They are reminiscent of products like “Speak and Spell” and newer products from companies like LeapFrog (NYSE: LF $4.26).  LeapFrog has not been a good investment in many years so Noah isn’t getting any “halo effect” there.  If LeapFrog were executing better, a company like Noah Education would make an interesting acquisition.

On the losing side, SemiLEDS put in the worst performance in the Lucky Candy ecosystem.  There are a few names that might be worth a closer look.

We do note that Dangdang, the “Amazon.com of China,” has corrected sharply although it’s still above the IPO price.  Investors in new names like Qihoo 360 should be careful.

Selected Company Morsels

AutoNavi did a deal with Motorola to have their 3D navigation and some mapping applications pre-installed on the Xoom tablet.

Motricity extended their agreement with Virgin Media for mobile TV services.

Open Table will have to fend off more start-ups. Livebookings in the UK announced that they have reached 1m reservations a month and just closed another $10m in financing.

IPO Candy Folio Update

The IPO Candy Folio was down 2.18% in the first half of April versus a decline of 2.98% for the Russell 2000.

We’ll be doing a full quarterly review of the holdings this month with an eye to a fresh set of weightings and new names.  So far for 2011 the IPO Candy Folio is up 7.49% versus 4.83% for the Russell 2000.  Given the risk inherent in investing in newly public companies, we strive for at least double-digit percentage returns and so far are on track to do that in 2011.  As with any risky investment, we are just as likely to be down for the year as well.

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

The Pipeline

We’ve updated the pipeline with the new filings and deals in active marketing that we are following.  Of the deals in active marketing, we are watching Renren21 Vianet (Chinese hosting provider), Responsys (online marketing) and NetQin Mobile (Chinese online security and communication tools.)

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

Coverage and the Calendar

Coverage is expected for Cornerstone OnDemand on April 26th.

Pacific Biosciences and NetSpend are coming off lock-up around mid-month but may be subject to additional blackout periods due to quarterly reporting.  Both names are slightly below their IPO price.

[Disclosures: None.]


[1] See “Demand Media: Cashing in on the Crapification of the Internet,” February 14, 2011 in the Research Reports tab at ipoc-staging.pxrqgl6-liquidwebsites.com.

 

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