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Realogy, Shutterstock surge on first day of trading

Shuttstock founder and CEO Job Oringer celebrates his companies first trades


Last week, restaurant chain Dave & Buster's spiked its IPO and industrial concern Berry Plastics Group Inc. sank in its debut even after cutting its offering price.

But that was last week.

The two biggest gainers on the New York Stock Exchange Thursday were its two big IPOs, Realogy Holdings Corp., the owner of the Century 21 and Coldwell Banker real estate brokers, and Shutterstock Inc., a photography-licensing company.

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Realogy priced its billion-dollar offering Wednesday night at $27 (U.S.) per share, at the top end of its range, and closed at $34.20, a gain of 26.6 per cent. Shutterstock priced at $17, above its planned range, and closed the day at $21.66, up 27.4 per cent.

Realogy's timing is excellent, as it's capitalizing on the news that the U.S. housing sector is showing its first true signs of life in years. With the Century 21, Coldwell Banker, and several other brands to franchise, Realogy says it was involved in 26 per cent of the residential real-estate deals in the U.S. in 2011 and produced $4-billion in revenue.

However: It's being taken public by its private-equity sponsors, including Apollo Global Management. Companies emerging from leveraged buyouts are often debt-saddled, and Realogy is no exception. More than $600-million in interest payments helped push it to a net loss for 2011. (In fact, in every year from 2007 to 2011, Realogy had positive operating income, and every year, it was completely wiped out by interest payments.)

IPO analyst Francis Gaskins advised his clients to avoid the IPO, noting the company has $4.56-billion in long-term debt, pushing its tangible book value – its hard assets, minus its liabilities – to negative $3-billion.

"Apollo always sucks as much cash out pre-IPO as possible, resulting in large negative tangible book values," Mr. Gaskins wrote. While the company is selling the idea it has lots of free cash flow to pay down the debt, he says. "There's no demonstrated record of success RGLS can sell to investors."

At $34, Realogy's market capitalization now stands above $4.6-billion, or nearly 10 times the EBITDA, or earnings before interest, taxes, depreciation and amortization, for its last 12 months.

Shutterstock has 35,000 contributors providing visual images to a library of more than 20 million images. It's a volume business: The company says it charges an average of $2 per digital download, but, with 58 million downloads in 2011, revenue hit $120-million.

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Margins are good: In the last 12 months, per Standard & Poor's Capital IQ, the company posted net income of $21.3-million on sales of $144.1-million, a net margin of nearly 15 per cent. The company's gross margin topped 60 per cent.

At $22 per share, Shutterstock's market capitalization tops $700-million, or more than 35 times net income from the last 12 months.

"Because Shutterstock's revenue stream is predictable and growing, and because it generates positive cash flow, IPOdesktop believes SSTK will increase from its IPO price," Mr. Gaskins wrote before Thursday's trading. "Comparing six month results -- which shows profit is not growing and free cash flow is declining as a percent of revenue – does raise some questions, however."

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