Genius Group (NYSEMKT:GNS) launched out of the gate with an incredible blast Tuesday. GNS stock exploded 408% higher on its first day of trading as a public company.
This is quite the surprise, as Genius is not a well-established company. The offering’s lead underwriter, Boustead Securities, is not a top-tier initial public offering (IPO) shop. And there simply isn’t any obvious reason for Genius’ hodgepodge of education-related assets to be generating this sort of red hot appeal. So what happened?
In a word, it was a tiny offering. Genius only sold 3.76 million total shares of its stock to the public at a measly $6 per share. As a result, Genius only raised $22.6 million from its IPO. This is small potatoes for an IPO. And indeed, Genius initially wanted to raise a lot more money.
The IPO was originally supposed to sell at least 7.3 million shares of stock to the public and raise far more capital from the deal. Thus, this was a tiny and not-in-demand offering. It also switched underwriters from Think Equity to Boustead while marketing the deal. All these things are usually associated with a small and uninspiring offering.
Looking at Genius’ assets, it’s not hard to see why. The business only has $24.2 million in 2020 pro forma revenues as per its prospectus. That comes from four different lines of business as well; the individual assets here are tiny.
The company has GeniusU, which is a free-to-learn EdTech platform. There’s also a property investors network and entrepreneur resorts, plus assets in South Africa and New Zealand. As if that weren’t enough, the company also has a small for-profit university, the University of Antelope Valley in California. How any of this fits together into a coherent mix remains to be seen.
Regardless, traders are now assigning this mishmash of education-related assets a rather generous valuation. Not counting the underwriting over-allotment of shares, the prospectus states there will be 21.5 million shares of GNS stock outstanding post-IPO. At a $30 share price, that’s a valuation above $600 million for a company that isn’t profitable, doesn’t produce free cash flows and is likely to have revenue in the $20 million to $30 million range this year.
It seems unlikely many investors actually think Genius is worth $600 million or more today as a business. Rather, GNS stock is flying high because of its tiny trading float. Given the small amount of stock sold to the public, even a tiny amount of buying from day traders can push the price to unusually high levels for a short period of time.
However, as short sellers start to enter the stock in the days following the IPO, and people that bought at the $6 level cash out, look for Genius to return to a price much closer to the initial $6 offering level.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
