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)