WASHINGTON, March 28, 2014 – Candidly, it is almost a waste of time trying to get ahead of this trendless stock market. Today’s trading action began strongly with averages sprinting ahead smartly, trying to make up for lost time this week.
Today, the positive effects of illegal portfolio end-of-quarter window dressing—“painted the tape” as old pros say—vainly attempted to offset this week’s real damage to the averages. But all was for naught as the market swooned into the close, ending up but only slightly.
More interesting today was the action in a batch of IPOs—three to be exact—and one secondary. The Maven only watches the ones he has a chance of grabbing in one of his Schwab brokerage accounts, as not all are available through that broker for one legit reason or another as we’ve discussed in these columns previously.
The three IPOs were, in no particular order: 2 U Inc. (new symbol: TWOU), a Bethesda, Maryland-based software company that essentially supplies the platform for nonprofit colleges and universities to offer online credit coursework and degree programs; Aerohive Networks (HIVE), purveyors of a mobile cloud-based networking platform; CBS Outdoor Americas (CBSO), a partial CBS (CBS) launch of that company’s largely Western Hemisphere billboard advertising division; and finally, that secondary offering, new shares of a small rival to Western Union, MoneyGram (MGI).
As opposed to a couple of recent “hot” networking offerings—“hot” means that only the 1% can get any of these lucrative, easily flappable new IPOs—this week’s available-to-the-Maven new and used stock offerings lacked all the usual hallmarks of “hot” IPOs. MGI, of course, wasn’t an IPO at all. The two network-centric, cloud-centric offerings were small, relatively insignificant, and moving into already occupied territory. And CBSO is actually an ad business that the CBS mothership is trying to get rid of.
Not promising. But you have to look for the details, and you really can’t make a move on these things until they’re priced, which usually occurs between 8-10 p.m. the evening before they first open for trading.
Sure enough, the pricing was the key. TWOU priced at $13, the top of its expected range. HIVE priced at $10, the exact midpoint of its range. And CBSO priced at $28, the top of its final range, though it had early expected to price in a slightly lower band.
What this final pricing essentially meant was this: TWOU was priced optimistically, but it was not oversubscribed (which is what makes a stock “hot” at a given price). HIVE was not being well received, but wasn’t undersubscribed badly enough for the underwriters to make a last minute price cut. And CBSO was, well, not terribly promising on the face of it. But unlike the others, still is substantially profitable in a unique advertising niche.
What to do? We skipped out on TWOU and HIVE, bid on shares of CBSO, and also picked up shares in that secondary (an offering of an already-existing stock) of MGI which priced down nicely from its market close, indicating we were getting a decent deal.
This morning, as each stock opened, we were pleased to see our likely scenarios play out. Both HIVE and TWOU got a tepid reception, down from the offering price most of the day but (legally) manipulated up by the underwriters enabling HIVE to close flat at $10 and TWOU to close up a decent 98¢ by the close.
But CBSO was a winner, closing up about a point and a half from its $28 pricing.
HIVE and TWOU were both victims, we think, of too much cloud, social networking and gaming hype over the last few months. After Candy Crush gamemaker KING tanked in its IPO earlier this week (and still remains weak), cloud and gaming bulls got nervous and sat this one out. The Maven figured they’d mostly do the same with HIVE and TWOU and that’s pretty much what happened.
Longer term, we actually think TWOU may be in a good space, as we are among those who believe that the old college-university model is about to die a very painful, agonizing death for a variety of reasons that include a massively negative return on tuition investment as well as the overhead caused by that massively overpaid cadre of poseurs, propagandists and frauds otherwise known as professors and administrators.
Online training offers a way out of this largely government-supported mass scam. But when the tent collapses, you’ll read that “nobody saw it coming.” But that’s because the perps and propagandists lack the ability to see the obvious. As the big collapse happens, however, it’s likely companies like TWOU that may benefit on a massive scale. Just not today.
CBSO was another story entirely, however. As we’ve already said, it makes a smart profit. It’s just that CBS wants out of the advertising business, in this case billboards. The business makes money, but it’s unpredictable; with the web it faces an uncertain future, allegedly; and CBS wants to focus on entertainment properties. So those billboards have gotta go.
CBS will likely part with the remaining 80% or so of CBSO by spinning off shares to CBS shareholders later this year. Today’s offering was essentially to establish a floor value for those eventual shares.
The reason we decided to like this one, aside from the profit part (we’re old fashioned that way) is the fact that billboard advertising is rapidly morphing into a unique business as CBSO and others begin to convert standard billboards into morphing videoscreen billboards that carry many different ads in a rolling sequence with flashy visuals. You may have seen a few of these already, although they’re not yet ubiquitous.
But this is ad space that has nothing to do with the dying magazine and newsprint businesses and nothing to do with the Internet. Those video billboards are out there all by themselves and capture largely drive-time audiences that have no other legal (or safe) way to view advertising on their way home.
Billboards remain a unique advertising option without a ton of competition. We can see why CBS might want to drop them. But it looks like a profitable business to us. Hence, our buy.
As for that MGI secondary. It popped modestly today, though we don’t expect much from secondaries right away. The stock opened this morning at its IPO price of $16.50, down from yesterday’s actual close. But it closed today at $17.02, providing a modest 3 percent pop for those who went in on the offer.
The offer was for what’s usually the wrong reason: insiders were unloading shares, so no proceeds went to the company. That said, though, the offer was well-priced and, like all such offerings, available without a commission. Better yet, the money-gram business is growing slowly but surely as more and more citizens of Obamanation find conventional banking services either inaccessible and overpriced.
In other words, this is a business that builds on our neverending economic disaster. And as an investor, you have to go where the money is. Ironically, this is one of those places.
That’s it for now. As the final day of the quarter, Monday, March 31 looms, its best to play it safe and not make many moves except for utilities which seem to be holding steady or going up, likely due to this year’s disastrously frigid winter and the resulting high heating bills.
Other than that, we’re looking into another IPO that’s just popped up and is expected to price on April Fool’s Day, which is perhaps a bit ominous. But so is that company’s really strange name: The Rubicon Project, Inc. (proposed symbol: RUBI). Any Julius Caesar fans out there. This is another advertising-oriented company. We shall see.
Have a good weekend.