Renowned IPO analyst Francis Gaskins talks with Opportunist’s Managing Editor Leslie Stone about what companies should do before going public, his thoughts on the recent Square Inc. IPO and which IPOs to be on the lookout for in 2016.
The Princeton University and Harvard Business School-educated Gaskins has always had an interest in growth companies and restructured companies. His extensive experience in sales, marketing, pre-IPO financial analysis and valuations, fundraising, forecasting and budgeting, strategic planning, and preparation of financial statements makes him the go-to IPO analyst for news media outlets such as Bloomberg TV, CNBC, thestreet.com, Reuters, NBC.com and a host of others seeking IPO investor insights, on either the IPO market itself or specific upcoming IPOs.
Gaskins has held board level positions at leading software, professional services (including executive search), and two industry trade associations, including a 200-member group of high technology CEOs. He is also the primary video IPO analyst at Jim Cramer’s thestreet.com website, Director of Research & Board member at Equities.com and a leading ‘IPO opinion leader’ at SeekingAlpha.
As editor of IPOdesktop.com and IPOinstitution.com in Marina del Rey, Calif., he organizes, prioritizes and edits incoming information from a staff of experts, to help subscribers make money and understand the IPO market. “Sometimes the window between the SEC filing with price ranges and the report published date is as little as four days,” he explains, adding that his aptitude as a “quick study” is essential for today’s dynamic IPO market.
Opportunist: What sparked your interest in initial public offerings of stocks and how did you hone your skills to be able to interpret and analyze the IPO market?
Francis Gaskins: After college graduation I became part of a group of money managers and financial analysts who had existing analytical systems, added to the systems and templates over the years—focused on IPOs.
Opportunist: What requirements must companies meet before they consider an IPO?
Francis Gaskins: They should pick an IPO climate that is favorably inclined to their market sector, and they should have a favorable income statement progression in terms of top-line revenue, gross profit margin and progression towards break-even.
And then there is the biopharma/tech sector—a different animal—which includes three of the worst performers over the last 100 IPOs: Jaguar Animal Health (NASDAQ: JAGX), -67 percent; HTG Molecular Diagnostics (NASDAQ: HTGM), -64 percent; vTv Therapeutics (NASDAQ: VTVT), -56 percent; and Ritter Pharmaceuticals (NASDAQ: RTTR), -54 percent.
On the other hand, the top three performers were also in the healthcare sector: Seres Therapeutics (NASDAQ: MCRB), +85 percent; Aclaris Therapeutics (NASDAQ: ACRS), +89 percent; and Global Blood Therapeutics (NASDAQ: GBT), +159 percent.
Opportunist: Do some companies go public too soon?
Francis Gaskins: In terms of investor return, yes, some companies perhaps do go public too soon. The saying used to be ‘go public or go broke.’
Opportunist: Several high-profile companies with IPOs in recent years have seen their stock prices fall or stagnate. Twitter (NYSE: TWTR), for example, was priced at $26 in Nov. 2013, saw a first day run-up to $50.09, and is now—two years later—trading below $26. Why is that?
Francis Gaskins: In Twitter’s case it was then and is now primarily rate of user growth. In other cases, such as GoPro, it’s the hype of a new but related line of business that didn’t work out.
Opportunist: How can an IPO’s performance and its reception among investors affect a company’s brand?
Francis Gaskins: A broken consumer IPO can damage a company’s brand because it can draw consumer attention to a problem, perhaps increased competition or perhaps management’s excessive and incorrect exuberance, which makes investors question management.
A fairly recent example is Etsy (NASDAQ: ETSY), which IPO’d at $16 in April 2015, traded as high as $31 and then slid below its IPO price on June 8, 2015. It recently traded at $8.47, and Amazon has created a sector to compete with ETSY.
Opportunist: When it comes to IPOs, how can investors get past the PR buildup to determine if a company will execute on its business plan and produce real earnings once the hype dies down?
Francis Gaskins: There are usually key metrics—perhaps hidden—in the SEC filings that provide going forward insights, mostly related to top-line revenue growth rates, plus other rate of change income statement metrics.
Opportunist: Square Inc. (NYSE: SQ), which just went public last week, saw its shares soar 45 percent. What will that mean for investors in the long term? Will Square be another Twitter, in terms of stagnant earnings, or will it fare better?
Francis Gaskins SQ has issues. Its rate of top-line revenue growth (not counting the Starbucks fiasco) is slowing in a hotly competitive market: payment processing, which is also populated by Apple Pay, Android Pay, PayPal and others.
The IPO price was compressed to $9 by institutional investors who were looking for a ‘deal,’ and they got one. We were hearing that if the price were $8 the SQ IPO would have been cancelled.
Another issue is that Jack Dorsey thinks he can be CEO of both Twitter and Square at the same time. We question his judgment in that regard.
Recently, SQ has been trading at $13, which is the top end of the original price range. As a result of the issues mentioned, we are not optimistic regarding SQ’s long-term growth rate.
Opportunist: Why has LinkedIn fared better than many other social media companies that went public in recent years?
Francis Gaskins: LinkedIn had a unique value proposition that is still unique. Also, it was one of the first social media companies to go public in May of 2012. Usually the companies that IPO initially in a sector are the strongest in the sector. Plus, Linkedin has not disappointed Wall Street in terms of growth expectations.
Francis Gaskins: BABA IPO’d at $68, moved to $115 and recently bounced off of $60 to trade at $80. Institutions own only 23 percent of the public stock. Seems like, in general, investors are becoming more comfortable with the pluses and minuses of BABA. It could move higher over time as institutions begin buying more, and move off the sidelines.
Opportunist: Will 2016 be a busy IPO year and, if so, are there any on the horizon that you are excited about and that investors should be on the lookout for?
Francis Gaskins: It all depends on the averages. The IPO market follows the market trends. If the overall market is neutral or moves up then there is a good IPO market. The reverse is also true.
Investors are looking with anticipation at potential IPOs of unicorns, valued at over $1 billion in the private market based on recent private placements. It will be very interesting to see the financials of the unicorns.
Uber is an IPO candidate with a private market valuation of over $50 billion. So is Airbnb with a private market valuation of over $25 billion. Others include: Xiaomi, $46bb; Palantir, $20bb; Snapchat, $16bb; Didi Kuaidi, $16bb; Flipkart, $15bb; SpaceX, $12bb; Pinterest, $11bb and Dropbox, $10bb.
Opportunist: We understand you are also an accomplished violinist. How long have you been performing?
Francis Gaskins: I started lessons at age seven. I was one of 100 national audition winners selected by the American Federation of Musicians to attend a two-month summer camp after my junior year of high school. The age range was 15 to 21, and I was 16. During my senior year in high school, I was concert master of the All Northwest Orchestra.
I have been concertmaster of the Palisades Symphony, and I am also fiddler in a Pirate band, a Cajun band and an Irish band. I played in a Chinese New Year’s celebration at UCLA in front of 500 mostly native Chinese. Our performance was voted No. 2 out of 13 acts.
Leslie Stone is an award-winning writer, editor and journalist with more than two decades of experience covering business, finance, real estate and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides between Florida and Michigan. Follow Leslie on Twitter: @lescstone.
Follow Francis Gaskins on Twitter: @IPOdesktop