2/26/16
Basket
of Puts (BOX, TDOC, PSTG, APIC, CRCM)
2014 was a record
year for IPOs. 275 companies went public generating proceeds of $85 billion,
the most since 2000. The VC/IPO bubble 2.0 was sharply corrected in 2015 with
only 170 companies going public netting $30 billion in proceeds. Average
returns on 2015 IPOs as of 12/31/15 was -2.1% compared to 21.0% in 2014 and
40.8% in 2013. Despite this justified correction, a wave of unprofitable companies
with unsustainable business models were able to list publicly and remain
grossly overvalued.
The following
companies all have several things in common. They took advantage of frothy
markets and went public too early, are highly unprofitable, have meager cash
reserves, and have substantial cash burn rates. Each company is trading well
below their debut prices and should continue to deteriorate. I highly doubt any
of these companies will be able to raise money besides secondary equity
offerings, which would further dilute their share prices.
Box
(BOX) is a cloud-based
file sharing company focused on enterprises. It is exceedingly unprofitable (-71% Net Income) and has declined 48% since
its opening day.
TelaDoc
(TDOC) is an
on-demand healthcare company that allows patients to receive medical
consultation via telephone or internet. While this is a novel approach, the
company is also unprofitable (-74% Net
Income) and has declined 49% since its opening day.
Pure
Storage (PSTG) is
a flash-based enterprise storage company. This particular industry is
overcrowded and I expect the weaker players like PSTG to ultimately fail as the
sector consolidates. Net Income is currently -76% and the lockup expires on
4/4/16. It has declined 17% since its debut.
Apigee
(APIC) is an
API-based software platform targeted towards enterprises. Net Income is running
at -66% and it has declined 65% since its public inception.
Care.com
(CRCM) is an
online marketplace for babysitting, senior care, and pet care. The entire
concept of this business is baffling. It is essentially using a craigslist-type
website to find strangers to take care of pets or family members. While they do
“vet” their caregivers, the company is currently mired in multiple lawsuits,
including two wrongful death cases. Less than 2% of members actually pay for
services on the website. Revenue growth is slowing at the company and their
cash burn rate is astonishing. The stock has declined 75% since it went public.
| Name | Ticker | IPO Proceeds (MM) | IPO Price | Current Price | TTM Revenue | TTM Net Income | NI % | Cash (MM) | Earnings Date |
| Box Inc. | BOX | $175 | $14 | $12 | $280 | ($198) | -71% | $215 | 3/9/2016 |
| TelaDoc | TDOC | $157 | $19 | $14 | $68 | ($50) | -74% | $152 | 3/2/2016 |
| Pure Storage | PSTG | $425 | $17 | $13 | $464 | ($353) | -76% | $573 | 3/2/2016 |
| Apigee | APIC | $87 | $17 | $6 | $73 | ($48) | -66% | $81 | 2/29/2016 |
| Care.com | CRCM | $91 | $17 | $6 | $147 | ($35) | -24% | $61 | 5/10/2016 |
It should be noted
four of the five companies report earnings in the next two weeks, so I plan on
getting involved prior to these releases. Shorting the majority of these stocks
is not cheap and there is always the chance that they could be acquired by
larger players given their distressed prices. For this reason, I am buying puts
rather than purely shorting.
BOX June 17 $12
Put
TDOC July 15 $15
Put
PSTG May 20 $15
Put
CRCM July 15 $5
Put
APIC (TBD)
