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LeapFrog Enterprises Inc. Message Board

  • inductive9 inductive9 Jan 10, 2003 4:31 PM Flag

    IPO Lock-up Period => the real deal

    According to a 2000 paper by Matthew Richardson of New York University's Stern Business school:

    "There is a 1%-3% drop in the stock price and a 40% increase in volume, when the lock-up ends."

    For LF to drop 40% (like another poster predicted) would be almost impossible; it is practically a six-sigma event (6 SDs away from the mean in a Gaussian distribution = very low probability)

    Furthermore, the paper was written in 2000. It is now 2003 and most of the arbitragers and short sellers are already exploiting this phenomenon. The downward price effect is already priced into the stock and is less than 1%. This is analogous to the Janurary effect: small caps have historically risen in Janurary. So what do people do? They start buying in December so that by the time Janurary rolls around, the Janurary effect is already priced into the shares.

    And of course, here is the link. Feel free to download the paper in .pdf format at the following website:

    http://ideas.repec.org/p/fth/nystfi/99-054.html

    (the link to the paper is at the bottom of the webpage)

    Hope this clears up the confusion

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    • You may also wish to look at GRMN on a major pullback.

      I got out this week because of a series of high volume days without upward price movement, but definitely will reassess. It reports 2/12.

    • I've left some more ready cash in reserve to take advantage of any additional weakness. I have a couple of other holdings that I'm actively engaged in as well.

      ELAB and VSTA

      LF is the strongest of the three, however.

    • I'd love to join you in buying more, but I'm already loaded up at the absolute maximum I ever put into one holding. Got some good call action going too.

      During the past several years, the potential of very few stocks has excited me as much as LF's has.

    • Why?

      Because I bought on weakness on a down day going into their strongest earnings report ever?

      You're an idiot!

    • yes, thats BS. you must be a LF employee.

    • What do you want to see?

      I bought today. Added another 1,000 shares at $24.50

    • don't see anything from you today, f355gts95. wonder why??

    • Hey f355gts95 - what they cannot seem to comprehend is that only - I repeat - only about 1 million will be available at the expiration - they keep saying 35 million -

      And on the next expiration they guys that own most of the stock, Milken, his brother and Ellison are not going to sell - period - they know this company is just getting going - they will not be selling - JMO

      teaux

    • For a good example of a recent lockup expiration event

      See: http://table.finance.yahoo.com/d?a=3&b=1&c=2002&d=0&e=10&f=2003&g=d&s=JBLU

      Scroll to the bottom of the page then slowly scroll up and watch both the price and volume as early to mid October approaches.

      Hardly the 1% to 3% delta that inductive9 referred to.

    • Referencing a paper that was written during the height of the dot-com boom has little to no validity in today environment.

      Back in 2000, Venture Capitalists and other large investors were still making money hand over fist. Dozens of new companies were having successful IPO each month and the big boys we building fortunes (this all began to change at the end of 2000).

      Today, much fewer companies are able to IPO, and the ones that do are lucky if they can keep the stock price up long enough for employees to enjoy the IPO price.

      In general, the big boys have always started to pull out right after the lock up. If they are lucky then the market will hold up the price while they sneak out tens of millions each day. If not, then �It will be a free for all�. Never forget that these investors are already looking at �huge gains�. It is in their best interest to lock in profits and to diversify their investments.

      Regardless of what happens after the 20th, a quality company will eventually recover and rise back to the top. Of course, you may have to wait until next Christmas before you see the high twenties again, but I don�t doubt that you will eventually get there.

      • 2 Replies to at_last_at_last
      • On January 20th there will be 35 million shares that will be free of the IPO lockout restriction.

        It is common knowledge amoung investors that companies that have a very large number of shares clearing lockout usually drop in price in the 2 weeks prior to and the 1 week after the lockout period ends. This is especially true of a stock that has run up significantly above it's offer price.

        You can see the stock dropping now, as it has gone from around $35 to $25 already. It is likely to continue, especially since the IPO offering was at $13. Many of those 35 million shares at $13 will want to make some money, so when they see their stock dropping so quickly, they'll be eager to sell on the 21st. Of course, the pros will already be out by then...

        The other dynamic is that the earnings are due on the 21st as well, so there will be lots of conflicting information and will create a lot of volatility.

        This was a great short opportunity at $30, and may still be, since the price is likely to drop below $20 in the next week or so...

        JMO, of course...

      • Go ahead and short LF. Too bad your money is not where your mouth is.

        Me out

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