IPOs get all the attention, but they're called initial public offerings for a reason: Sometimes, companies go back for seconds. Investors don't like surprises, and they don't like getting a smaller piece of a company's pie than they expected. Nevertheless, secondary offerings are a useful market tool, and three companies have recently decided it's what they need to succeed. Keep reading for the details, as well as to learn what secondary offerings can and can't do for your portfolio's profits.
Shocking news from NextEra
Utility company NextEra
In the company's press release, it estimates that the net proceeds from this sale will come in around $630 million, but no specific purpose for these new funds is listed. Utilities are generally a capital-intensive industry, and NextEra's focus on renewables makes cash in hand even more important for this expanding company. The company estimates that in 2012 alone, it will spend $1.4 billion on wind energy capital expenditures.
Papa's got a brand new bag
Last Friday, luxury clothing company Michael Kors
Kors is one of the few IPOs of 2011 that actually went right, so this secondary offering came as a surprise to some investors. Its stock has appreciated 120% from its $20 starting price tag, but Kors has good reason to get greedy.
As the economy is poised to recover, increasing its store presence will allow this company to achieve the scale benefits that its competitors Coach
Capital Expenditures, Most Recent Quarter
|Kors||237||$17 million||$10.3 billion|
|Coach||833||$73 million||$17.9 billion|
|Ralph Lauren||857||$62 million||$14.6 billion|
Sources: Company SEC filings, Yahoo! Finance, ycharts.com.
Another successful IPO story, real estate tech company Zillow
However, as my fellow Foolish writer Rick Munarriz points out, the real estate industry is picking up speed and Zillow can't afford to lag behind. Zillow's 75% boost in quarterly sales is nothing to laugh at, but its $1.1 billion market cap leaves a lot of room to grow. The company's CEO estimates that real estate advertising is a $6 billion market, and he wants every last penny of that to be funneled through his Zillow.com.
Even as these three companies ready themselves for an influx of cash, Facebook
Facebook needs to grow like any other corporation, and some heavy R&D is needed to ensure that the company can continue to monetize its advertisements. However, it understands that diluting its shares would be comparable to poking a porcupine with a stick. Facebook investors aren't exactly happy with the stock's performance, so the company is wisely looking elsewhere.
Foolish bottom line
Companies don't always act in the best interest of their shareholders, and any corporation announcing a secondary public offering needs to have a pretty good reason for doing so. In the case of these three companies, each is attempting to grow and compete in a time when extra cash could mean the difference between first and last place.
Likewise, Facebook has made a smart decision not to pursue another stock offering, instead using its rainy-day reserves to pay its debt without irking investors. Understanding the story behind any "SPO" will help make you a better investor, so be sure to always ask the deeper questions when your portfolio pick decides to go back for seconds.
Facebook's move to not move on another public offering is giving some investors hope that the company is ready for a rebound. Tech whiz and Motley Fool Analyst Evan Niu has prepared a special premium report outlining his own take on Facebook's future. Evan analyzes the value of Facebook's user base and international growth opportunities, and whether the company's advertising is worth as much as it's selling for. The report comes with a full year of free updates and is available for a limited time only, so be sure to grab your copy today.
The Motley Fool owns shares of Coach, Facebook, Citigroup, and Zillow. Motley Fool newsletter services have recommended buying shares of Facebook, Goldman Sachs, Coach, and Zillow. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.