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Tale of Two IPOs: Michael Kors Vs. Facebook

Michael Kors had a clear plan for growth. Facebook? Not so much


The IPO market can be a tough place to make money. The Facebook (NASDAQ:FB) offering was supposed to be the deal of the century, and somehow it turned into a disaster. Interestingly enough, it has been low-tech companies such as Michael Kors (NYSE:KORS) that have done very well with their IPOs.

True, Facebook has stabilized over the past week. Yet the stock is still off 27% from its $38 offering price. Meanwhile, Michael Kors is up 91% since its IPO.

This shouldn’t be a mystery. Investors always need to worry whenever there’s extreme hype surrounding an IPO. It’s an even bigger problem when the company is showing signs of a slowdown.

That was certainly the case with Facebook. During the company’s roadshow, one of the world’s largest advertisers, GM (NYSE:GM), announced that it was pulling all of its ads from the social network. The carmaker said they weren’t effective.

Facebook also filed a “free writing prospectus” that showed a troubling development. It said: “Growth in use of Facebook through our mobile products, where our ability to monetize is unproven, as a substitute for use on personal computers may negatively affect our revenue and financial results.” This is lawyer-speak for when a company believes there is a slowdown coming.

Despite all this, Facebook priced its IPO at a nosebleed valuation of $104 billion, which was 160 times earnings. This compared to a 17X multiple for Google (NASDAQ:GOOG) and 14X for Apple (NASDAQ:AAPL).

What about the Michael Kors IPO? There was definitely hype surrounding the deal — but it was supported by strong momentum. The company’s founder had long since proven that he knows how to grow a brand — he’s been doing it for more than 30 years!

More importantly, Michael Kors had a strategy in place to continue the growth, which was clearly set out in the S-1. The focus was to roll out more Michael Kors own stores around the world. At the same time, there were plans for distribution at retailers such as Bergdorf Goodman, Saks Fifth Avenue (NYSE:SKS), Neiman Marcus, Harrods, Nordstrom (NYSE:JWN) and Macy’s (NYSE:M).

So it should be no surprise that the company has continued to beat expectations. For example, today Kors announced its fiscal fourth-quarter results, which saw revenues spike 58%, to $380 million, with earnings of 22 cents, up from 10 cents in the same period a year ago.

For the full year, the company expects earnings of $1.08 to $1.12 and revenues of $1.7 billion to $1.8 billion. This compares with the Wall Street consensus of 98 cents in earnings and of $1.69 billion in revenues.

All in all, Michael Kors had a plan to provide for growth, while Facebook showed little clarity in its strategy. Basically, the company’s CEO and co-founder, Mark Zuckerberg, spent little time on the roadshow and got married a day after the IPO.

Is this what a leader should do?

Zuckerberg could learn some valuable lessons from companies like Michael Kors.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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