Top o’ the morning to you, Data Sheet readers! Fortune senior editor Andrew Nusca here, filling in for Heather Clancy while she visits climes far warmer than the impending Snowpocalypse™ we’re expecting here at Fortune HQ. This morning: Samsung’s cash pile, a Maple Syrup Mafia (?!), and a damn good reason why Box’s IPO wasn’t all it was cracked up to be. That and more, in this morning’s Data Sheet. Read on.
WHAT YOU MISSED
AT&T will acquire Nextel Mexico for $1.88 billion. It’s the No. 5 network in that country and will allow the former to serve 76 million customers more cheaply than building out its own infrastructure.
Samsung may be the next chip supplier for the iPhone, according to a South Korean newspaper, demonstrating that in the electronics business, it’s hard not to be frenemies.
Drama continues between Wikileaks, Google, and the U.S. government after Google quietly turned over to the Justice Department email and other such data related to three staffers. The situation is too complicated to elaborate on here, but it prompts many good questions.
Harman, the audio company, picks up two companies (Symphony Teleca, Red Bend Software) in a quest to expand into delivering data wirelessly. See also: Internet of Things, automotive telematics, Sonos.
Ripple, a digital payments company, is finalizing a $30 million round. The startup makes “a bitcoin-like technology that enables institutions to transfer money internationally.” New investors include Andreessen Horowitz, Google Ventures, IDG Capital Partners. (Andreessen also recently invested in TransferWise, a P2P transfer startup.)
Seagate posted solid earnings for its latest quarter—profit of $933 million, or $2.78 a share, up from $428 million, or $1.24 a share, a year earlier; revenue was up 4.8% to $3.7 billion—buoyed by revenue growth and an arbitration award from a dispute with rival Western Digital. The storage company is in the midst of a rebrand.
McDonald’s Japan signed a deal with VMob, a New Zealand mobile marketing company, for “cloud-based mobile customer engagement.” Translation: Mobile marketing that can react to real time data.
YOU OUGHTA KNOW
A “Maple Syrup Mafia”—yes, really—is on the hunt for the next BlackBerry.
Brazil’s IT market will grow 5 percent this year, according to IDC. The sector was on a growth tear before macro economic trends slowed it down, but it appears to be surging again, held down only by currency issues.
Microsoft’s own infrastructure-as-a-service platform, or cloud, is code-named “Nebula.” A blog post explains how the company is confronting its own problems.
The first U.S.-regulated Bitcoin exchange is upon us. Hello, Coinbase.
...ABOUT THAT BOX IPO
On Friday we launched Fortune Live, a new video show that will tape and broadcast live at 3 p.m. ET each week. During the opening segment, Fortune senior editor-at-large Shawn Tully and I discussed the initial public offering of Box, the enterprise software company that rung the bell Friday morning. He made some great points about why the IPO wasn’t as successful as it appeared and later expanded his thoughts into an essay. It’s below.
Here we go again.
On its Friday, January 23rd debut, Box Inc BOX 0.09% did what Wall Street keeps telling us IPOs are supposed to do: Its stock soared.
Box’s underwriters pre-sold the shares at $14, mainly to mutual funds and other institutional investors. By the end of its first day of trading—defying a sharp drop in the S&P—the stock finished at $23.15, a gain of $9.15 or 68%.
Folks who aren’t steeped in Wall Street-think might wonder how any stock that didn’t just receive a sumptuous, totally unexpected takeover offer could jump 70% in a single day. They might also question why big powerful investors got most of the shares at a fabulous insider price, and the great unwashed are mainly relegated to buying Box at a marked-up, post IPO price. As a CEO who went through the process once told me, “In IPOs, the fat cats get the rich cream.”
This is the blueprint that investment banks keep selling to companies that want to go public: Let the stock make a big, big pop. It’s the way to go. You’ll generate great publicity and secure the loyalty of the funds that pocket gigantic, guaranteed gains in a single day. Out of gratitude, they’ll hold your shares through good times and bad. That “loyalty” is mostly ephemeral, but the issuer’s belief in those assurances seems eternal.
Here’s the price Box paid for pre-selling its stock at far less than what investors were paying virtually from the opening bell to the end of the trading day. Box sold 12.5 million shares; so the total gross proceeds were $175 million. Fees and expenses amounted to $17 million, so it will collect $158 million in cash ($175 million less $17 million) from the offering.
But what if Box had resisted the Wall Street pitch and auctioned its shares to the highest bidders? Or what if it had prodded underwriters to pay full price, as Facebook FB 0.46% did? If Box had gotten total value for those 12.5 million shares, it would have put around $280 million—an additional $120 million or so than it actually collected—on its balance sheet. So it really “cost” Box around $120 million in underpricing, to raise $157 million. It “paid” 76 cents in foregone proceeds for every dollar it collected.
The $120 million Box left on the table equals over 70% of its cash holdings prior to the IPO. An extra $120 million in assets would have raised its net worth by over 40% after the offering.
Those are big numbers. So why do brilliant venture capitalists and brainiac founding teams keep falling for the investment banks’ assurances that raising less money is actually good for them? Hint: It’s usually good for employees, especially the top managers, who are able to secure options and other stock grants at the super-bargain IPO grant price. They then get to take part in the same guaranteed windfall as the institutional investors.
IPOs are one of the great, mysterious Wall Street spectacles. The praise is overwhelming, the definition of “success” is baffling, and anyone who questions the system is taken for a dullard.
(Was the Box IPO a boom or a bust? Tweet at me @editorialiste and tell me why.)
THE FORTUNE FIVE
Handicapping Apple’s earnings, by Philip Elmer-Dewitt.
ESPN expands into e-sports, by John Gaudiosi.
Lloyd’s CEO: Cyber attacks cost companies $400 billion every year, by Stephen Gandel.
Meet Memo, the startup that enables anonymous office gossip, by Erin Griffith.
The NHL and GoPro do a deal, by Daniel Roberts.
ONE MORE THING
“More than ever before,” The Economist argues, “America’s elite is producing children who not only get ahead, but deserve to do so.”
MARK YOUR CALENDAR
IBM Interconnect: Cloud and mobile strategy. (Feb. 22 – 26; Las Vegas)
Gartner CIO Leadership Forum: Digital business strategy. (March 1 – 3; Phoenix)
Microsoft Convergence: Dynamics solutions. (March 16 – 19; Atlanta)
IDC Directions 2015: Innovation in the 3rd Platform era. (March 18; Boston)
Cisco Leadership Council: CIO-CEO thought leadership. (March 18 – 20; Kiawah Island, South Carolina)
Gartner Business Intelligence & Analytics Summit: Crossing the divide. (March 30 – April 1; Las Vegas)
Knowledge15: Automate IT services. (April 19 – 24; Las Vegas)
RSA Conference: The world talks security. (April 20 – 24; San Francisco)
Forrester’s Forum for Technology Leaders: Win in the age of the customer. (April 27 – 28; Orlando, Fla.)
MicrosoftIgnite: Business tech extravaganza. (May 4 – 8; Chicago)
NetSuite SuiteWorld: Cloud ERP strategy. (May 4 – 7; San Jose, California)
EMC World: Data strategy. (May 4 – 7; Las Vegas)
SAPPHIRE NOW: The SAP universe. (May 5 – 7; Orlando, Florida)
Gartner Digital Marketing Conference: Reach your destination faster. (May 5 – 7; San Diego)
Annual Global Technology, Media and Telecom Conference: JP Morgan’s 43rd invite-only event. (May 18 – 20; Boston)
HP Discover: Trends and technologies. (June 2 – 4; Las Vegas)