"We've Got Way Too Many IPOs"
Anytime Jim Cramer says that a "trend is really worrying", you know that whatever debauchery Wall Street is up to is coming to a predictable bad ending. There are four separate but related issues all converging at the same time related to this latest IPO frenzy:
1) Recent IPOs are tanking as they approach their lockup expirations, weighing down the market.
2) 100 Companies have lockup expirations occurring in the next 100 days.
No less than 25 newly IPOd companies have share lockup expirations in March alone. 30 in April, 29 in May and 15 in June. Once the expirations are reached, insiders are free to dump their shares into the market, massively expanding the total share float.
4) New IPOs are accelerating as Wall Street fears its window of opportunity is ending. This week there were 11 IPOs (6 today alone). There are 17 priced already for April and 25 more just filed.
A Box of Junk
Recent IPOs are junk. The file sharing company "Box" just filed its IPO. This company somehow lost a staggering $168 million on revenue of $124 million despite being a nine year old company. 93% of its customers are non-paying users. They are filing to raise $250 million, but they burned through $168 million in cash in the past year, so they will be dependent upon capital markets for the foreseeable future.
And, of course this week's failed IPO of KING Digital (developer of "Candy Crush") was the first major failed IPO of 2014, now 15% below its issue price.
Recent IPOs are tanking as they approach lockup expiration
Here's a high quality gem right here. This company organizes 3-day ecstasy rave parties for teenagers. The major risk alluded to in its prospectus is that its customers have an unfortunate habit of dying of heart attack at age 16.
Here's the CEO giving an investor presentation:
SFX Entertainment (SFXE)
Insider lockup expiration April 7th, 2014
Initial issue price: $13
58.com (WUBA)
Insider lockup expiration: April 29th, 2014:
Barracuda Networks
Lockup expiration: May 5th, 2014
Lockup expiration: May 5th, 2014
Zulilly
Lockup expiration 5/14/2014
Relypsa
5/14/2014
500.com
5/21/2014
Kindred Biosciences
6/10/2014
Twitter, RocketFuel, FireEye etc. You get the idea, way too many to show.
The most recent trend alluded to by Cramer is that institutions are dumping existing companies to buy up the most recent IPOs so they can take part in the day one pump and dump. This is putting extreme pressure on the overall market which is already in a very precarious position.
He attributes the massive decline in Biotech to this phenomenon:
"Senior biotech companies were annihilated last week, but not the new IPOs. That's not tenable."
"Some of these companies might be worth investing in, but Cramer said most are largely inferior to their rivals that have been around longer."
"Let's be aware: You can't have two markets. A house divided will not stand."
WALL STREET'S HOUSE OF CARDS IS DIVIDED
