Zendesk IPO: Show of Strength or Sign of Weakness?

In this video, Motley Fool analyst Lyons George takes a look at Zendesk's  (NYSE: ZEN  )  recent initial public offering.

In what appears to be a straightforward success, the tech company's shares finished the day of its IPO at $13.43 -- great news for those who got in early. But there's more to the story than meets the eye, as Lyons explains that some of that first-day public market demand may not have come from the "public" at all.

A full transcript follows the video. 

Will this stock be your next multibagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year, his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252%, and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Lyons George: Hi, I'm Lyons George with The Motley Fool, here today to talk about one of the biggest tech IPOs of the week, Zendesk.

The cloud-based helpdesk-on-demand company came out swinging this past Thursday, raising $100 million in its IPO, and closing out the trading day with shares at $13.43, a full 49% above where they opened. You can bet people who got in early are happy about that!

Also, that's good news for both the company and its investors, especially considering the stage Zendesk came out to -- a month that has seen the tech sector hit especially hard, with giants like Amazon, Facebook, and Yahoo! all booking [at least] 15% drops from their 52-week highs.

With that success story in the can, does that mean smooth sailing for tech investors from here on out? Not necessarily.

If you dig a little bit deeper, there was an article published in The Wall Street Journal that shows that a sizable chunk of the first-day demand that made Zendesk's venture capital investors so happy may well have come from Zendesk's venture capital investors.

In a document disclosed the morning of the IPO, the company revealed that a group of its early backers, including a trio of venture capital companies, indicated an interest in buying up to $25 million, or one-quarter of the offering, on the day of the IPO.

In other words, it's very possible that some of the demand behind this successful out-of-the-gate performance was, in a sense, artificial.

Now, it's worth noting that while a move like this wouldn't be unprecedented, it's also extremely uncommon in tech IPOs. Generally, VCs have more of a mind toward making an exit, rather than doubling down when one of their portfolio companies makes its debut.

But with the market punishing even the biggest of players recently, it looks like Zendesk and its backers are more than a bit worried about a broader tech slowdown.

Now, if you're worried about a slowdown, too, or think the market's going to keep going up or just want to stay up to date on what's happening in tech, be sure to go to Fool.com for all your day-to-day tech coverage. I'm Lyons George with The Motley Fool. Thanks for watching, and Fool on!


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2965409, ~/Articles/ArticleHandler.aspx, 10/25/2014 10:19:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement