Clearwire's Bubble Bursts
The outlook had been strong for the Kirkland, Wash., operator. The IPO price per share was set at $25 -- the top end of its range -- and the underwriters added another 4 million shares to the 20 million initially offered in prospectus. (See Clearwire's Cash Craving and Clearwire Wants $480M in IPO.)
The stock opened at $27.25 on the Nasdaq yesterday but was down by the end of the day and hit $24.63 in after-hours trading.
Stock specialist John Fitzgibbon Jr., publisher of IPOscoop.com , says the extra shares might have been part of the offering's undoing.
"Its simple supply and demand," he tells Unstrung. "There were just too many shares out there."
There are also concerns about what it will take to make Clearwire's wireless broadband business profitable. In its IPO filings, the proto-WiMax provider reported 2006 net losses of $284 million on revenues of $100 million, compared to losses of $140 million and revenues of $33 million in 2005.
"One of the attractions of Clearwire is the soaring revenue, but they're paying out two or three dollars for every one dollar of revenue," Fitzgibbon says. "This looks like one of those dotcom bubble-era companies."
Before getting $600 million in the IPO, Clearwire had raised more than $1.2 billion from key backers including Intel Corp. (Nasdaq: INTC) and Motorola Inc. (NYSE: MOT). But Clearwire has already said it may need more investments to complete its plans to roll out fixed and mobile WiMax.
"How much cash do they have? Something like $1 billion," says Roger Entner, VP of wireless telecom at Ovum Ltd. . "That looks like a lot to you or me, but they need $5 billion to $10 billion to do something interesting with wireless."
So far, investors have ponied up extra cash because Clearwire is the latest venture of Craig McCaw, the man who created the first national cellphone network in the U.S. and sold it to AT&T Inc. (NYSE: T) in the mid-90s. (See McCaw Clears the Wires.)
"Craig McCaw probably has the best name in wireless investment." comments Entner. "There are a lot of people, who, if Craig McCaw turned up at their door blind and asked for money, they'd give it to him." [Ed. note: And if he turned up deaf? or, heaven forbid, leprous?]
But McCaw has had some serious flameouts, most notably XO Communications Inc. (in its earlier incarnation) and Teledesic.
"He's also had strikeouts," notes Entner. "And, if you'll pardon me for saying so, this one looks like a strikeout."
— Dan Jones, Site Editor, Unstrung