by Tom Taulli | December 12, 2013 6:00 am
There’s little to complain about with the IPO market this year: Out of 201 offerings, 21 have posted gains of more than 100%.
But that doesn’t mean the market was full of winners. Consider that 50 deals are still under water, and 22 are off by more than 20% — a painful loss for anyone who invested early on.
So yes, the IPO market is still a risky game and requires a good amount of due diligence (which, of course, we try to do for you at the IPO Playbook). To that end, it sometimes helps to see what went wrong, so you can avoid similar situations in the future.
What are some of the worst IPOs of 2013? There were lots to choose from, but these are the ones that stood out:
Since going public in late June, it seems the only place Tremor Video (TRMR) has found success is attracting shareholder lawsuits. Other deals in the online adtech market have performed poorly, but TRMR has been the worst.
The company has had lots of trouble meeting Wall Street expectations. In the latest quarter, TRMR stock plunged 49% on its dismal report. Revenues increased by only 17% to $35.3 million, and the net loss came to 5 cents per share. But the consensus estimate was for revenues of $36.26 million and a loss of only 2 cents per share. The guidance was also weak, with revenues projected at $29.5 million to $30.5 million — way beneath the Street’s estimates of $38.56 million.
In quick fashion, TRMR has gone from a hot growth company to a value play. After all, the can on the balance sheet is $96 million while the market cap is a mere $208 million. But any time you drop more than 50%, you’re a good bet for the worst IPOs list.
CYAN (CYNI) develops networking technology based on software-driven transport/switching, which allows for higher performance at data centers at a lower cost.
But growth has been uneven as CYNI relies on snagging large contracts with few telecom operators. That makes CYNI vulnerable to earnings misses, which happened in Q4. The company announced guidance for revenues of $30 million to $33 million — far short of the Street’s expectations of $46 million.
CYAN is still hopeful about the long-term, however. According to ACG Research, the target market for the company’s products is nearly $16 billion worldwide. For now, though, CYNI stock makes our list of the worst IPOs of 2013.
One general rule for IPOs is to make sure the first earnings report is a good one. Violin Memory (VMEM), failed miserably on that count, and that’s how it landed on our list of worst IPOs.
The company, which develops Flash memory systems, reported a loss of 85 cents on $28.3 million in revenues for the third quarter. While the company hit its revenue expectations, the net loss was well off the 44-cents-per-share consensus estimate.
But the outlook was even worse. For Q4, VMEM put out a forecast for revenues of $30 million to $32 million, which fell far short of analysts’ $44 million estimate. On the news, VMEM stock plunged 46% to $3.25. Keep in mind that the company went public in late September at $9 per share.
VMEM faces some tough issues ahead. One is the heavy customer concentration: Five companies account for 37% of VMEM’s total revenues. The competition is also intense, with rivals like Dell, EMC (EMC), IBM (IBM), Oracle (ORCL), NetApp (NTAP) and Hewlett-Packard (HPQ) all competing for VMEM’s revenues. Not to mention a spate of venture-backed startups gunning for the market opportunity.
Prosensa (RNA) pulled off a successful IPO in June, with the stock surging 48% on its first day of trading.
But things turned for the worse a few months later. Prosensa’s drug for Duchenne muscular dystrophy failed to meet requirements in a Phase III trial. As a result, RNA stock plunged 70% in a single day.
That doesn’t necessarily mean the company is doomed, though. Prosensa will work with its partner GlaxoSmithKline (GSK) to analyze the clinical findings to see if there is some hope. Although, Wall Street still isn’t convinced, as an analyst from JP Morgan pointed out in a recent research report, downgrading RNA stock from “overweight” to “neutral.”
But that 70% drop makes RNA the worst of the worst IPOs for 2014.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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