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Facebook Inc (FB), Workday Inc (WDAY) & Gigamon Inc (GIMO): The Good, Bad & Ugly of IPOs

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The Bad

We all remember the infamous Facebook Inc (NASDAQ:FB) IPO. It was heralded as a can’t miss offering — the most anticipated IPO in decades, perhaps ever. Yet, instead of a 30% pop on its IPO, the stock closed flat, and even temporarily traded lower.

Facebook Inc (NASDAQ:FB)

Facebook is the quintessential example of a bad IPO. Not only is the stock currently trading at half of its IPO high, but trading was delayed by more than 30 minutes by the NASDAQ and there were millions of shares that were never confirmed. In the end, the Facebook Inc (NASDAQ:FB) IPO not only hurt investors and the reputation of the NASDAQ, but also damaged the lead underwriter Morgan Stanley; as they had to maintain an opening price that they inflated from $24 to $38.

The Ugly

Facebook Inc (NASDAQ:FB)’s IPO was without question “bad” in every facet of the word. Looking back, if it would have maintained its $100 billion market cap, it would have been a company with decelerating growth trading at 25 times sales. Yet, because the stock did fall and never maintained such a lofty valuation, it’s not considered ugly.

An IPO might be ugly when the opening price leads to a large one-day gain in a company that is seeing decelerating growth and is not worthy of the premium. Workday Inc (NYSE:WDAY) was an ugly IPO!

Technology produces the most highly anticipated IPOs, and in technology it is big data and cloud computing that garners the most outrageous valuations of all. Workday Inc (NYSE:WDAY) fits in the cloud computing space.

It was expected to price between $24 and $26 per share, but instead priced at $28, and then opened at $48.05. Workday has since doubled its IPO price – which many might call a good IPO – although, the company’s less than flattering fundamentals paint an ugly picture.

When Workday Inc (NYSE:WDAY) became a public company, back in October, it was producing revenue growth of 100%. Now, growth has slowed to 61% and is expected to decelerate to 40% year-over-year. The stock trades at a mindboggling 34.6 times sales with an operating margin of negative (38.65%). As a result, with growth being its only driver of valuation, the stock becomes a trap to retail investors due to the fact that growth is slowing. When it’s all said and done, this presents dangerous situations for retail investors.

The Good

The quintessential example of a good IPO can be seen more recently, on Wednesday as a matter of fact, with Gigamon Inc (NYSE:GIMO). Gigamon is considered a play on “big data,” a rapidly growing space that is expected to triple in size over the next two years.

Gigamon helps companies manage the flow of data within their networks, including both performance and security. For this particular function, Gigamon Inc (NYSE:GIMO) provides the service of choice, as more than 60 of the 100 largest U.S. companies are clients of Gigamon. Considering the company has 13 issued patents on its technology covering them between 2027 and 2030 – and 23 pending – I’d say its services are pretty well protected.

So what makes Gigamon’s IPO good? For one, it was priced attractively as seen with its 49.84% rally – also closing at intraday highs. But also, this is simply a fabulous company even after considerable gains, still presents value for shareholders; which is rarely seen in this momentum-based IPO market.

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