3 reasons not to invest in the ExactTarget IPO?

A highly-competitive landscape, freemium competitors and a not-so-sexy niche combine to make this stock’s IPO a questionable buy at best.

Apparently, IPOs come in threes. There’s been a rash of them in the email marketing field. On Monday, we learned that an ExactTarget Inc. IPO is next. The company plans to join the fray on the heels of a similar IPO announcement from competitor Eloqua Ltd. Both companies are following Responsys Inc. (NASDAQ:MKTG) to market.

When Responsys started trading in April, the company’s shares shot up to $15.40. They recently closed at $12.40 for a loss of nearly 20 percent. That’s not the only reason I’d be wary to invest in an ExactTarget IPO. Here are three reasons to look before you leap:

1) Competition. A quick trip to Alexa.com gives us the following traffic comparisons between competitor Constant Contact, Inc. (NASDAQ:CTCT) (in red) and ExactTarget (in blue):

While traffic to an email marketing company’s web site isn’t indicative of how many customers it has, it does nonetheless give us hints about a company’s brand power. And right now, ExactTarget, Responsys, Eloqua and VerticalResponse (which has been mum on an IPO) are fighting it out for the No. 2 slot behind Constant Contact.

The market’s actually assigned a higher value to Responsys (with a market cap of $583 million) than it has Constant Contact ($486 million). Constant Contact pulled in $1.2 million last quarter on revenue growth of 23 percent over the past year, while Responsys is yet to turn a profit. Revenue growth at Responsys has been impressive, though, shooting up more than 70 percent over the past year. In July, ExactTarget claimed revenue growth of 41 percent last year (per Bloomberg). If those trends continue, I’d lay my cash on Responsys.

2) Freemium is better. In addition to the competitors I’ve already mentioned, one terribly-named company might pose more of a threat than all the others for ExactTarget. That’s Mailchimp.com. Growth at Mailchimp has been astounding (again, here’s a comparison from Alexa):

Mailchimp offers an alternative business model that’s rapidly becoming one of the more successful models in the tech sphere: freemium. It hooks new, low-volume users with free offerings, then – as the needs of those customers grow – it starts charging for its services. Linkedin Corporation (NYSE:LNKD), Skype and Pandora Media Inc. (Public, NYSE:P) are just a handful of companies that have used freemium offerings to grow into billion dollar tech giants. And it makes sense. You can’t get much better marketing that giving away your product to millions of users for free. In a world with rapidly-falling hosting and data services costs, freemium is becoming more and more cost effective, and that could throttle pay-as-you-go companies like Constant Contact that offer limited free trials.

3) A not-so-sexy niche. Email marketing just doesn’t generate the sort of excitement that, say, cloud computing stocks do. Salesforce.com, Inc. (NYSE:CRM), for instance, is trading at a P/E ratio of 611! While Warren Buffett might argue that the last thing you should look for is how popular a sector is, I’m not sure it pays to seek out tech stocks most people don’t even understand. If there is a sell-off in stocks, you can bet companies like ExactTarget will suffer more than say Netflix, Inc. (NASDAQ:NFLX), which has an easy-to-grasp business model, promising growth and cash on hand.

It’s not all bad

Before you ditch all plans to buy shares in ExactTarget, the company does have some selling points. Revenue growth of 41 percent is far from shabby (so long as they can keep their costs down), and the company’s shown a lot of initiative in mobile-based marketing – specifically in text messaging as a marketing tool. Not only is mobile marketing costly, it’s riddled with regulations and specialized technology. That makes most companies more than happy to outsource their SMS marketing campaigns. If ExactTarget can carve out a strong niche there, it’ll go a long way toward becoming more than an email marketing company.



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Is Lyric Jeans Inc. (PINK:LYJN) stock a buy?

Shares in penny stock Lyric Jeans Inc. (PINK:LYJN) rocketed up more than 300 percent after the company announced a jewelry collection that will debut at Wal-Mart. Does LYJN have more room to run?

Within three hours of the publication of a press release yesterday, shares in penny stock Lyric Jeans Inc. (PINK:LYJN) rocketed up more than 300 percent from $0.006 to $0.0237. That pushed up the company’s market cap nearly $15 million in just 180 minutes. The move came on the announcement that Lyric will soon launch a new jewelry collection under the brand name Lyric Nation at nearly 1,500 Wal-Mart (NYSE:WMT) stores.

Does that make shares in Lyric Jeans a buy? As is the case with most penny stocks – no one really knows for sure. Financial terms of the deal were not disclosed, and the company hasn’t released any financial data since the quarter ended March 31, 2010. Still, here’s what we do know: As of March 31, 2010, Lyric Jeans had sales of $170,317 and expenses of $237,693. Total net loss for the period was $164,410.

Since March 31, 2010, we haven’t gotten any financial data from Lyric Jeans, which makes it difficult to determine the effect of the Wal-Mart deal. If the jewelry line will be sold in 1,500 outlets, each Wal-Mart location will need to buy more than $11,000 in merchandise in order for the deal to be worth more than $17 million in sales. Of course, that’s not a good measurement when trying to determine whether the stock still has room to run as market caps almost always outstrip annual sales. Investors, after all, buy shares in a company to capitalize on future growth.

The question now is, how sustainable is Lyric’s growth? Is the Wal-Mart deal a one-off or could it lead to more deals moving forward? There are more than 2,500 Wal-Mart locations in the U.S. Should the retailer see encouraging sales of the Lyric Nation jewelry line, more orders will almost certainly flow in.

Lyric also claims its products have long lined the shelves at other well-known retailers including Bloomingdale’s, Nordstrom and Target, and in March the company announced it was unveiling a LYRIX brand jewelry line targeted at girls ages 13 to 17 at nearly 800 Claire’s Stores, Inc. Should the jewelry line do well, Claire’s has more than 3,000 locations worldwide Lyric might be able to tap. Both deals are signs the company’s moving in the right direction. And it just might breath some longer-term life into a stock many investors had written off.

Until we start getting actual financial reports from Lyric, though, the announcements probably won’t lead to a long-term uptrend in shares. They might, however, convince Lyric to start publishing regular financial results, and – pending the numbers in those reports – that might turn Lyric into a long-term buy.



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How does the BATS exchange work?

Instead of buying shares on the NYSE or NASDAQ, retail-level investors may soon be placing orders on BATS as well, provided their brokers offer access to the exchange.

A tiny tech and trading start-up, BATS Global Markets, piqued the curiosity of investors after announcing that it will soon file as a primary U.S. market. The move, which BATS hopes will allow it to start listing stocks in the fourth quarter, would pit the Kansas City-based stock exchange against the two largest stocks exchanges in the world in the NYSE and NASDAQ.

What does the move mean for investors? Instead of buying shares on the NYSE or NASDAQ, retail-level investors may soon be placing orders on BATS as well – provided their brokers offer access to the exchange.

“The key for this to be successful will be to be able to attract a key company to list,” Josef Schuster, founder of Chicago-based IPO investment firm IPOX Schuster LLC, tells Reuters. Schuster speculates that doing an IPO and listing BATS shares on the BATS exchange itself could be a way of doing that.

Alternatively, attracting a sought-after tech company like a Zynga or a Groupon to list with BATS might do the trick. As it stands, BATS is already the third-largest exchange in the world by volume. That’s largely thanks to the exchanges’ emphasis on speed.

When BATS went live in January of 2006, most trading platforms executed trades in one to 30 milliseconds. BATS executed trades in one to three milliseconds. Today, BATS executes 80 percent of all its trades in 250 microseconds (.25 millliseconds). Contrast that with the NYSE, which executes trades in 650-950 microseconds.

BATS’ emphasis on speed has attracted business from “hedge funds and other trading operations” that engage in high-frequency trading, Newsweek reports. Should the company land a few big fish to list, it could very well grow from there and challenge the supremacy of the NYSE and NASDAQ.



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Five reasons to invest in the RenRen.com IPO

Five reasons to invest in the RenRen.com IPO

In what promises to be one of the most exciting IPOs of the year, China’s leading social networking site, RenRen.com, is planning an IPO in the U.S. Here are five reasons to consider investing in RenRen’s IPO.

In what promises to be one of the most exciting IPOs of the year, China’s leading social networking site, RenRen.com, is planning an IPO in the U.S. Here are five reasons to consider investing in RenRen’s IPO:

1) Reach. RenRen is China’s undisputed leader in social networking. A recent article on TechRice claimed the site has more than 160 million registered users. The site’s user base surged by more than 60 million people between October 2009 and October 2010. That’s good enough to rank RenRen as the 16th-most-visited site in China (per Alexa) and the 108th most-visited site in the world. The site’s closest competitors aren’t far behind, though. Kaixin001.com is ranked 19th in China, and 51.com, is ranked 43rd in China. Still, the visibility of a large IPO could help cement RenRen’s spot as a market leader.

2) The market size. At somewhere between 420 and 460 million, the size of China’s Internet population dwarfs even the entire population of the U.S. And those users are flocking to social-networking sites, which had 176 million users last year, up 68 percent from the year before, MarketWatch reports.

3) Innovation. RenRen.com started as a Facebook clone. It was such a blatant copy of Facebook that it even labeled itself a “A Mark Zuckerberg Production.” The site’s evolved into its own entity since its 2005 origins, although it still mirrors many of the same offerings on Facebook.com. RenRen, for example, unveiled RenRen Places (a check-in system that lets users broadcast where they are) around the same time that Facebook launched Facebook Places. The company also launched a RenRen Like button that can be embedded on Web site pages and RenRen Public Pages, which can be used by local businesses and organizations to promote events and offerings – both are features that were first launched on Facebook.

Still, there are signs that RenRen’s beginning to experiment and develop its own ideas from the ground up, and that could lead to significant new revenue streams. Most notably, RenRen has launched its own Groupon-style coupon system and a streaming radio service called Renren Aiting. The wide acceptance of virtual currencies in China also promises interesting revenue possibilities on RenRen as the company strengthens its applications platform and continues biting into the country’s large online gaming user base.

4) Surging revenues. While there isn’t any publicly available financial data on Renren yet, the company has said its advertising grew by “more than” 100 percent last year and in 2009, according to FT.com. Facebook.com, which is the second most-visited site in the world, reportedly had revenues of $1.2 billion over the first nine months of 2010.

5) Social media is just plain different in China. Cultural differences in media consumption in the U.S. and China could actually make RenRen.com more profitable than Facebook. Chinese surfers have long shown different consumption patterns in their browsing habits on the Web. “The usage of social media in China is off the charts relative to almost any country in the world,” Thomas Crampton, Asia-Pacific director of Ogilvy’s 360 Digital Influence, a social media marketing service, told HuffingtonPost. There’s actually a strong propensity there to follow and engage with brands and businesses on social networking sites. 87 percent of social networking users in China follow or “friend” brands. That makes interacting with companies the second-most popular activity on RenRen and other social networking sites, according to Ogilvy’s research. That’s the sort of engagement marketers dream about, and it could push RenRen into the green a lot faster than analysts might expect.



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How a little plastic gnome can help you become a better investor

Trading too often is one of the most common causes of losses in investing. Try invoking a little plastic gnome to put your investments in perspective before making an impulsive trade.

Plastic gnome investingI’ve consistently preached that one of the biggest problems afflicting individual investors is the urge to trade too often. Buying and selling stocks too quickly can lead to extravagant profits, but it can also lead to extravagant losses. I first started trading stocks at the one of the worst times possible: the fall of 2008.

I was moving in and out of banking stocks just as congress was debating enormous stimulus packages. I’d be up 20 percent one day and down 30 percent the next. Some of the companies I invested in (National City, for instance, which was purchased from the jaws of insolvency by PNC Financial Services) don’t even exist anymore. Others have since shot up more than 400 percent from my initial buy price. I didn’t see any of the gains, though, since I got a margin call that nearly wiped out my trading account.

I was buying and holding at the wrong times and day-trading on heavy margin in one of the most volatile markets in decades. But, in many ways, I’m glad I lost gobs of money in the market. It taught me a lot of important lessons. Chief among them? No one can see the future, but in retrospect everything looks clear as day.

Ford Motor Company (NYSE:F), for instance, was trading around $1.50 a share early in 2009. If you would have laid down $15,000 on the company then, your investment would be worth more than $120,000 now – a mere two years later!

When you’ve lost enormous sums of money on a stock, it makes it even harder to want to stick to a buy-and-hold investing strategy. But it really does change the way you approach investing decisions. You stop focusing on the day-to-day news that plagues public companies and you start looking at more important factors: good management, great advisory boards, competitive advantages and long-term growth factors.

Buying for the long run almost requires a re-wiring in your brain. I was reminded of this in a strange source: an article on “Conquering Self-Doubt” in the Wall Street Journal. Apparently, a new form of cognitive-behavioral therapy has emerged in psychological and self-help circles. Dubbed, Acceptance and Commitment Therapy, the field urges acceptance of irrational fears.

“Part of what mindfulness does is get to you to recognize that these critical thoughts are really stories you have created about yourself,” Zindel V. Segal, a professor of psychiatry at the University of Toronto, tells the Wall Street Journal. “They are not necessarily true, but they can have self-fulfilling consequences.”

Applied to investing, an Acceptance Therapist might tell you that rather than watching a stock tick up and down every few minutes and painting horror stories about the losses you might endure, you recognize and accept short-term fluctuations in price and stay with the stock you’ve picked.

“You don’t have to react to (negative thoughts) at all,” Katherine Muller, associate director of the Center for Integrative Psychotherapy in Allentown, Pa., says in the article. “Just allowing them to exist takes away their power.”

Muller goes on to note that she sometimes pulls out a little plastic gnome to embody negative thoughts. Rather than trying to fight the gnome or change his behavior, you just let him sit there with that silly grin on his face, and figure out whether your fears are truly justified. If your fears aren’t justified, just let your investment ride. You’ll probably be glad you did.


What is a good faith warning margin call from Zecco.com or other brokerages?

What exactly is a good faith margin call? Learn the triggers and potential ramifications for a good faith warning in your stock trading account.

A good faith warning is issued when a customer buys on unsettled funds.  This is not a violation until the customer actually sells what they bought (without allowing the original purchasing funds to settle). Remain in your position until your funds settle, and the warning should go away. Again, a warning does NOT become a margin call unless you sell before your funds have settled.

This type of warning is typically issued in cash accounts. In some instances, your account may show buying power even if funds from a recent sale have not cleared. If you use that non-existent buying power, you’ll be issued a good faith warning. If you then sell those shares before the funds from your recent sale have settled, you’ll receieve a margin call.

How to find good stocks for day trading

Follow these three steps to find good stocks to day trade.

Day trading is the act of buying and selling stock in the same company in a single day. Due to increased risk, day trading is subject to special financial regulations that you should fully understand before you start. Once you’re ready, follow these three steps:

1. Pick a stock that trades more than 500,000 shares per day. Always pay attention to volume. Since some low-cost stocks aren’t traded frequently, it may be difficult to find buyers when you need to move out of a stock. 500,000 shares is an arbitrary number, but it can prove a helpful guide to avoiding ending up trapping your money in a stock for the long-haul. If you can’t move out of your position, after all, you won’t be able to buy and sell other stocks.

2. Consider trading penny stocks. Penny stocks are officially defined as stocks that trade for less than $5. They often prove volatile, providing great opportunity for reward (and, conversely, they’re much riskier than more expensive stocks). Stocks that trade for less than $5 and more than $3 are generally safer than stocks that truly trade for pennies. Margin accounts require investors to hold stocks that are trading for $3 or higher. That means that if a stock falls below $3, some investors who are holding that stock may be forced out of their positions. That can push the price of the stock even lower. Avoid going long on stocks that are trading right around $3.

3. Look for stocks in hot sectors. If shares in flash drive-maker SanDisk Corporation (NASDAQ:SNDK) are rising, consider buying shares in a lower-cost stock that’s in the same sector; Micron Technology, Inc. (NASDAQ:MU), for instance. Sectors generally move together. If one stock in a sector appears to have moved too high, it’s probably wise to look at one of that stock’s peers.

The key is to remain patient when you’re day trading. Don’t pull the trigger until you have strong reasons to believe a stock will move in one direction.