IPO WRAP: 2 Deals End Stretch Of Tough Pricings, Then Trade Up
25 February 2012 - 8:48AM
Dow Jones News
Two U.S. companies broke a monthlong bad pricing streak in the
IPO market, and then went on to deliver strong first-day gains
Friday.
Custom-designed parts manufacturer Proto Labs Inc. (PRLB) and
social commerce software company Bazaarvoice Inc. (BV) each priced
their initial public offerings above their expected ranges, the
first deals to do so since Guidewire Software Inc. (GWRE) topped
its range on Jan. 24. Of the 16 IPOs that have debuted since
Guidewire's, 10 ended up pricing below range, and none priced above
their midpoints.
Like Guidewire, Proto Labs and Bazaarvoice went on to deliver
good first-day trading gains, with Proto Labs rising 81.3% to close
at $29, and Bazaarvoice increasing 37.6% to close at $16.51.
Although the broader stock market environment has definitely
been on the rise, which is a necessary component for IPO
performance, it's too early to say that good pricing and trading on
these two deals portends easy days ahead for other IPO hopefuls.
Earlier this week, an offering from seed developer Ceres Inc.
(CERE) came to market at $13 after it reduced the low end of its
price range to $16 from its original aim of $21, indicating that
investors aren't jumping at every company seeking to come
public.
The main driver for both Proto Labs and Bazaarvoice was investor
interest in their use of technology, though each relies on a
different type.
In Bazaarvoice's case, it all came down to a single word
description: cloud. Cloud-based technology companies, which host
software, data and services, have been performing well this
year--starting with Guidewire's deal in January.
"If you're in the cloud," investors are instantly interested,
said Francis Gaskins, president of research site
IPOdesktop.com.
Bazaarvoice uses the cloud to deliver its software to business
customers who want to collect, display, analyze and redistribute
consumer reviews on their websites. Although the company isn't
profitable, it has generated the kind of double-digit percentage
revenue growth that tech investors like. In the nine months that
ended Jan. 31--its fiscal year ends in April--Bazaarvoice saw its
revenue increase 65% to $75 million, compared to the same period a
year earlier, as it added new clients and increased revenue from
existing clients.
Unlike Bazaarvoice, Proto Labs' technology hook requires a
paragraph to sum up, but investors were willing to listen. The
company uses proprietary software and automated manufacturing
technology to cut out most of the skilled labor normally required
to manufacture custom parts for product prototypes and small pilot
production batches. Proto Labs, which interacts with its customers
primarily online, targets its services toward product developers
who use three-dimensional computer-aided design software.
Low-volume manufacturing has traditionally been a time-consuming
and expensive endeavor due to the need to set up equipment and
processes for each design, but Proto Labs says that its technology
has allowed it to automate many of the steps so that it can ship
parts in as little as one business day after receiving a
design.
In 2011, its revenue increased by 52% to $99 million, compared
to 2010 as sales to both new and existing customers increased. Net
income in 2011 rose 64% over 2010 levels to $18 million
Proto Labs Chief Executive Bradley A. Cleveland said that during
the company's road show, he received a lot of positive feedback
ahead of the higher pricing.
"It's a pretty cool combination of a high tech company and a
manufacturing company," Cleveland said during a telephone
interview.
Jefferies Group Inc. (JEF) and Piper Jaffray Cos. (PJC) managed
Proto Labs' offering. Morgan Stanley (MS), Deutsche Bank AG (DB)
and Credit Suisse Group (CS) managed Bazaarvoice's offering.
-By Lynn Cowan; 301-270-0323; lynn.cowan@dowjones.com
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