The IPO Buzz: Hope Behind the Headlines

That’s why it may not be coincidence that investment bankers hope to take seven companies public this week – and raise $1.5 billion in the process. And one of those IPOs, QuinStreet, brings back one of the hottest names from the IPO “insanity dot*com” era -– Frank Quattrone. But more on that later.
 
Let’s take a look at why some investment bankers may have a more optimistic outlook than Joe Sixpack does at the moment.
 
The Back Story
If you believe in Wall Street folklore, you’ll want to mark Friday, Feb. 5, 2010, as a date to remember. Two things happened that day.
 
First: The stock market had been under heavy selling pressure for the past two weeks. After closing at their most recent highs on Tuesday, Jan. 19, the major indexes went into a swoon the next day and racked up sharp losses through the close on Thursday, Feb. 4: Over those 12 trading sessions, the Dow Jones Industrial Average (DJIA) lost 6.74 percent, while the S&P 500 slid 7.57 percent and the Nasdaq Composite Index dropped 8.40 percent — hard hits by any standard.  
 
On Friday, the sell-off leaped to the front page of most big daily newspapers.
 
But what a difference a day makes. By Saturday, the coverage of the stock market had melted back to the business section.
 
Some Wall Street graybeards say when this happens, it’s a sign the worst is over.
 
Second: The DJIA plunged from an intraday high on Wednesday, Feb. 3, of 10,356.86 to an intraday low on Friday, Feb. 5, of 9,822.84 — a loss of 5.2 percent. The Dow hit its low about 2 p.m. on Friday, Feb. 5, and then buying swept in. By Friday’s close, the Dow industrials finished at 10,012.23, a gain of 1.9 percent or 190.21 points from its intraday low hit just two hours earlier.
 
The wild two-day swing was accompanied with a sharp increase in volume.
 
The New York Stock Exchange daily volume for Monday, Tuesday and Wednesday averaged 1.09 billion shares. Then came Thursday and the Dow’s plunge of 268 points. The NYSE volume exploded to 1.48 billion shares and edged up to 1.53 billion shares on Friday. That’s a 50 percent increase from the early part of the week.
 
Some Wall Street greybeards say when this happens, it’s a selling climax.
 
(Note: Today’s crowd would say a capitulation, but things were different years ago, when these “guidelines” came into play.)
 
Of course, nobody really knows what will happen, but we’ll find out soon enough.
 
Return of the Dot*Com IPOs?
Against this backdrop, bankers are planning — or hoping — to price seven new issues this week. They are looking to raise $1.5 billion.
 
And yes, Virginia, there is one deal on the IPO calendar that stands out from the rest. It reaches back 10 years ago to the “insanity dot*com” era. It is QuinStreet (NASDAQ: QNST – proposed).
 
QuinStreet provides online marketing, media and technology that caters to financial services firms and for-profit education companies. Based in Foster City, California, in the San Francisco Bay area, QuinStreet is 10 years old.
 
The press is focusing on QuinStreet’s financial adviser — Frank Quattrone, once the king of IPOs, and his Qatalyst Partners. But there is more to the story than this.
 
QuinStreet has revenues ($293.1 million for the last 12 months) and it is profitable ($20.5 million for the last 12 months).
 
The company will make its public debut in a poor IPO market. And maybe that isn’t all that bad. Consider the following.
 
Ten years ago, the QuinStreet IPO would have drawn a 5-Star rating from Redherring.com’s IPO Street Poll. That would have been a double or more in the aftermarket. It’s a far different IPO market these days. Nevertheless, investment professionals (many who contributed to the IPO Street Poll in the old Redherring.com days) say that they like the deal.
 
Should the stock pop in the aftermarket, it could bring some much needed sizzle to the IPO market.
 
However, investors are not the only ones watching this deal. There are well over a dozen privately owned competitors and similar companies sitting on the sidelines that might have some interest in how QuinStreet fares. Look at what happened in the fall of 1998.
 
Flashback to Fall 1998
Only three IPOs were priced during September 1998, according to the U.S. Securities and Exchange Commission filings. One was eBay (NASDAQ: EBAY).
 
The stock market was in the midst of a four-month sell-off that had begun in the third week of July and ended in the second week of October. Along the way, the DJIA fell 17.2 percent and the Nasdaq Composite lost a staggering 29.5 percent.
 
The eBay deal was price at $18 per share and started trading on Sept. 24, 1998. The IPO opened at $59.50 and closed its opening day at $47.38, UP 163.2 percent from its initial offering price.
 
That lit the fuse for the Internet era. It took about six weeks for the IPO calendar to start producing dot*com deals.
 
On Nov. 11, EarthWeb priced its IPO at $14 per share. It opened at $44 and closed its opening day at $48.69, UP 247.8 percent from its initial offering price.
 
Just two days later, came the IPO everybody talked about.
 
On Nov. 13, theglobe.com priced its IPO at $9 per share. It opened at $90 – yes, at $90 per share — and closed its opening day at $63.50, UP 605.6 percent from its initial offering price -– still No. 1 in the IPO Moonshot Hall of Fame.
 
Return to the Present
This week’s IPO calendar lists seven new issues, including one Internet deal. The legendary Frank Quattrone is back in play. Many privately owned companies that are competitors or in similar businesses will have to be watching QuinStreet.
 
At press time, QuinStreet planned to offer 10 million shares at $17 to $19 per share. The deal is expected to be priced Wednesday, Feb. 10, and to trade Thursday, Feb. 11.
 
This could be an interesting week for the IPO market.
 
 
Disclosure: Neither the author nor anyone else on the IPOScoop.com staff has a position in any stocks mentioned, nor do they trade or invest in IPOs. The author and IPOScoop.com staff do not issue advice, recommendations or opinions.