One company that benefited from a frothy 2010 was Qlik Technologies (NASDAQ:QLIK), a provider of business intelligence software. Qlik went public July 15, 2010, with an IPO at $10. QLIK jumped 28% on its first day of trading and is up around 90% since then.
So is Qlik stock a keeper after this red-hot year and 2010 IPO? No way. At $24, this stock is crazy expensive. If you own this stock, sell; and if you don’t, forget you ever heard the name Qlik Technologies.
QLIK Early Investors Jump Ship
You have to give credit to its early lead investors. Accel Partners and Jerusalem Venture Partners invested $20 million of their capital in November 2004 into a business that immediately went out the following year and lost $6.5 million on $25 million in total revenue. It takes guts to hang in their while dollars are flying out the door.
But when the VC money sells out of Qlik is also a telling sign. While the two venture capital firms didn’t sell any shares in the IPO, Accel and JVP sold a combined 10 million shares in its December 2010 secondary offering for a cool profit of $213 million on an investment of approximately $6 million. In early February, Accel distributed all its remaining shares to its partners and as of May, JVP held just 3.7 million shares or 22% of its original position. I’ll be shocked if any of these shares are held at the end of 2011. Both companies appear to think that now is the time to get out.
IPO Historical Returns
Not many Americans would know the name Stephen Jarislowsky. He’s a billionaire money manager living in Montreal, Caanda. At 86, Jarislowsky is Canada’s version of a financial sage. In his book, The Investment Zoo, he suggests you can buy nine out of ten new issues at a lower price, one or two years later.
Fourteen months into its stint as a public company, Qlik Technologies is well above its IPO price with 10 months remaining until the two-year mark.
Jarislowsky is a billionaire for a reason. His experience trumps analysts wet behind the ears who give Qlik Technologies a $34 price target with minimal or no profits justifying the lofty valuation. If you were lucky enough to have gotten in on its IPO at $10, you’ll be smart to sell before history repeats itself.
Analysts Have No Clue
According to Yahoo Finance, 13 analysts have a median price target of $34 and a mean recommendation of 2.2 out of 5 for QLIK. Generally, this translates to a “buy” or at least a “hold” label on the stock. One analyst even has a $40 price target. That’s ludicrous and not just because it’s losing money.
Morgan Stanley tech analyst Adam Holt downgraded Qlik Technologies Sept. 13 from “Overweight” to “Equal-weight” because of its exposure to Europe and its lack of recurring revenue. The average enterprise company Holt covers generates 64% recurring revenue compared to 30% for Qlik Technologies. Essentially, Holt is suggesting that its future earnings power is murky at best and downright scary at worst. In the second quarter, it increased revenues 45%. Unfortunately, it increased operating expenses by 75%.
This might be an acceptable situation when operating as a private company under the auspices of VC investors, but it won’t cut it as a public company. Investors need to see that its business model is scalable and so far, it doesn’t appear that’s the case. Even using non-GAAP financial statements, the second quarter profit of $0.01 a share was one-cent worse year-over-year. In the past four quarters, the company has missed analyst estimates by an average of 31% per quarter. Those same analysts have a full-year estimate of $0.26 a share, which is a P/E of 93. I’d bet everything but the kitchen sink it will surprise on the downside.
Bottom Line: Sell QLIK Stock Now
If you want to feel like a venture capitalist by investing in companies like Qlik Technologies, then that’s your business. But don’t come crying when your horse doesn’t come in. And the odds suggest it won’t.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.