Investors give Palm a thumbs-down
Investors are washing their hands of an IPO that was touted as the most anticipated debut of the year.
After soaring to more than $160 yesterday, Palm shares have slid steadily, ending today at $80.25. That raises the question of whether investors already are washing their hands of an IPO that was touted as the most anticipated debut of the year.
Some IPO analysts said that while Palm's 150 percent first-day gain was respectable, they were surprised that the performance was not even stronger. After all, the company had taken the bold move of doubling its pricing range before setting its IPO price, a sign that usually signals extraordinary investor demand.
"There's been only two dozen IPOs that have doubled their pricing range, and Palm's 150 percent gain is anemic compared to what the others did," said Richard Peterson, an IPO analyst with Thomson Financial Securities Data.
Avanex, which produces processors used in optical networks, soared 378 percent on its first day. Internet advertising company Avenue A jumped 200 percent on its debut. Both companies, which went public this year, had doubled their pricing range, Peterson said.
Jeff Hirschkorn, senior IPO analyst with IPO.com, expected Palm's shares to hit $300 yesterday, but he noted that the Nasdaq was weak, which may have tempered Palm's performance.
As for the sharp decline in the stock price, Hirschkorn said: "The blood is coming. Big investors (who paid $38 for their shares) are flipping their money and going to other deals."
Analysts noted that at its current price, Palm has a massive $45 billion market capitalization. As a result, investors may be favoring more reasonably priced companies.
Based on anticipated revenues of $1 billion for calendar year 2000 by Wall Street analysts, the company is valued at a price equal to 45 times revenue.
"Palm is probably in a better position because they have sales and earnings and a big corporate backer," Peterson said. "VA Linux was a stand-alone. TheGlobe.com was a stand-alone."
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"That's pretty aggressive," said one analyst who asked not to be named. "In the networking space, Cisco is considered a high-multiple stock for a market leader that's growing at a pretty healthy rate, and they're trading at a multiple about 25 times revenues."
During the six months ended Nov. 26, Palm generated revenues of $435 million, up from $263.3 million a year ago. It posted profits of $22.5 million in the period, compared with $16.2 million a year earlier.
Palm also carries a hefty price-to-earnings ratio of more than 1,300. That compares with about 153 for Cisco.
One other measuring stick shows the pricey nature of the shares: Palm's $45 billion market capitalization is more than double that of the company it was spun off from: 3Com's market value is about $29 billion. Oddly enough, 3Com still owns about 95 percent of Palm after the IPO.
Another factor could cause the shares to drift aimlessly for a while. With any IPO, analysts have to wait 25 days once the stock begins trading before issuing recommendations and reports. The Securities and Exchange Commission requires this lag time so the stock can settle down, analysts said.
As Palm's shares slide, some individual investors are getting nervous.
"The big fishies made a lot of money yesterday, and the little fishies spent a lot of money yesterday," said one investor on an Internet bulletin board. "They'll quash it down, then jump back on and do it again. Wish they hadn't filled MY order at ten minutes before the bell yesterday...I'd be getting on today @87, instead of 95. I guess that's why they call it feeding frenzy--the fishies go nuts.
"It'll go back up--I think maybe."