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IPO Warriors IPO Preview forJanuary 31 – February 4, 2022

February 1st, 2022

After last week and Monday of this week saw recent low-float IPOs KSCP and FGI go on explosive runs, day traders are likely to be on the lookout for the next low-float IPOs to trade. This could bring back the debut play, with less of a drop off the open that we saw in the last two low float IPOs, while still a bit of tentativeness to keep the debut premium in check.

The market has warmed up this week, and cash is flowing a bit more freely, with eager traders likely looking to make up for recent losses. So things could get frothy if anything catches fire.

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If you joined me last week for the live-trading debut on $KSCP and $CRDO (where I pointed out the likelihood of a delayed pop on KSCP) then I hope you took away some ideas for trading this (CRDO also jumped once the market thawed out today)…

I will try to live trade some of the IPOs this week, but won’t know for sure until the day of the IPOs, so be sure to subscribe to the IPOWarriors YouTube Channel for updates:

https://www.youtube.com/channel/UCS5j-KpdsZlLEaReHXIDqqQ

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Ok, Let’s jump in:

Maris Tech (MTEK) – February 2, 2022 | 3.1M Units (Share + Warrant)
Price Range:
$4.20 – $5.80
Offering Size:
$18M
Shares Outstanding:
6.67M

Industry: Electronic Components

Overview:
This Israeli company manufactures hi-tech electronic components that are used in video, audio, and wireless communication devices, with both civilian and military applications. Their products are specifically defined as incorporating AI, being ultra-compact, and technologically advanced: used in military drones, satellites, autonomous driving, etc. and are a combination of hardware and software technologies.

Considerations: There is high demand for electronic components and AI driven analytical software related to video, as their growth numbers attest, and as long as they can maintain their upstream supply chain, business should continue to grow. More importantly, this IPO is priced to run, and the low float of just 3.1M shares is sure to catch day traders attention. The company, at least on the surface, is sexy enough to make for an interesting story (FGI took a few days, but ran and it sells kitchen sinks)… so I get the sense that day traders are gonna key in on this one. The only curve ball to me is the warrants, which often skew the debut price. As long as the market continues it’s upbeat rebound bounce into the pre-debut on this one, I think we have a solid setup for an opening run.

Growth Numbers:
– Revenue Growth:
+151% for 6 months ending June 30, 2021
– Gross Profits:
+178% for 6 months ending June 30, 2021

Baseline Financials:
– Cash Flow:
negative – improving
– Net Income:
negative – improving
– Operating Profit:
negative – improving

Notes from the F-1:
– Risks: Have faced recent challenges in retaining employees due to COVID
– Risks: Increased lead time to obtain components: supply chain disruption
– Insider options lockup period is 12 months

Underwriters:
Aegis Capital

IPO Classification:
Ultra Low Float – Electronics

Recent Similar IPOs: VLCN

Trading Strategy:
The company has a sexy story on the surface, and the ultra-low float is likely to get the attention of everyone who missed KSCP and to some extent, FGI. The market has rebounded this week, so spirits are high and day traders will be looking for something to trade. If there are other low-float plays that run in pre-market (watch out for recent low-float biotechs that post any kind of headline), then perhaps the spotlight gets taken away from MTEK, but if there aren’t any other parabolic movers in the market, this one could become the primary focus of day traders attention.
My debut trading strategy will ultimately be determined by the following factors:

– IPO Pricing and Allocation Fills: I put in a request for $100 on WeBull… if they price this at $5.80 or above, and only give partial allocations, then we’re looking a solid setup for an opening run. Pricing below $5.80 and full allocations means we may see an opening drop, particularly if we see any kind of debut premium.

– Debut Premium: Given that there are warrants involved, we shouldn’t see too high of a debut premium: if any at all, but if we do, we need to be cautious of an opening drop either immediately off the debut, or if there is a halt up off the debut, then following the halt. Ideally, we see some tentativeness in buying the debut to keep this from opening at any kind of dangerous level: an opening trade at or slightly above the IPO price would likely present a favorable debut buy-in opportunity.

– Buy-Side/Sell-Side Indication: If we see a heavy sell-side indication in the pre-debut IPO crossing, then I recommend waiting for an expected drop on the debut. These IPO debuts can often produce halts in either direction, which can reverse just as quickly. I probably won’t tempt fate on any kind of high debut premium, but if this indicates that it will go live within $1 of the IPO price (on either side), I’ll be leaning on the buy-side/sell-side indication to dictate my opening move. A heavy sell-side presence, and I’ll try to undercut by 9%: hoping to get in right before a halt to the downside in anticipation of a reversal off the bottom (as we saw with FGI on the debut). Even if it drops slightly from there and baselines lower, you have reason to hold out for an eventual pop, and can even average down in that case and hold for the Day 2 run (or in the case of FGI, Day 5)…. If we see a buy-side indication, with a debut price near or slightly above the IPO price, I think we’re in a good setup for an upward run off the debut (similar to what we saw with HOUR).

The unknown variable is how the warrants will play into the debut pricing and opening trade action, as many allocation recipients are likely to flip their common shares at the opening trade if we see any kind of debut premium.

Brand Name Recognition:
Low.

Debut Trade Conviction Level:
High.

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Direct Digital (DRCT) – Date TBD | 2.187M Shares
Price Range:
$7.00 – $9.00
Offering Size:
$20M
Shares Outstanding:
13.57M

Industry: Programmatic Ad Buying/Selling

Overview:
This holding company operates three platforms that provide services in the digital ad management space:

Colossus SSP: is a supply side platform that sells ads for their media customers.

Huddled Masses: creates digital marketing campaigns for clients. Kind of seems like a well-established digital marketing agency.

Orange142: this is the demand side platform that handles data management, audience targeting, content marketing, and analytics for their clients.

They claim 56k sell-side clients (clients selling advertising), and just 158 buy-side clients. So it seems like their primary business is selling ads for their clients, and Colossus SSP appears to be their primary revenue driver.


Considerations: This one was rescheduled from last week, and has been downsized from 4M shares to 2.187M shares, so perhaps it was just a response to frigid market conditions, but clearly there has not been all that much demand for their offering as of yet. As for the company, it all feels like a digital marketing company that has built up scalable services platforms to offer services to mid-sized businesses that want to optimize their digital marketing budgets. With very strong growth metrics and positive baseline financials, coupled with a low float, this one could be interesting.
Don’t particularly like that Roth Capital is an attached underwriter, as the market has repeatedly shunned their offerings, seemingly out of spite. So that makes me a bit cautious in taking any risks on this debut.

Growth Numbers:
– Revenue Growth:
+330% for 9 months ending September 30, 2021
– Gross Profits:
+693% for 9 months ending September 30, 2021
– Gross Margin:
53% for 9 months ending September 30, 2021

Baseline Financials:
– Cash Flow:
positive – improving (negative in 2020 and positive in 2019)
– Net Income:
positive – improving (negative in 2020 and 2019)
– Operating Profit:
positive – improving (negative in 2020 and 2019)

Notes from the S-1:
– Risks: restricted use of 3rd-party cookies (specifically by Google), would affect the effectiveness of their platform. While they believe they can adapt and develop alternatives, without specific clarification on how they will do this, I am a little concerned about the long term performance of this company.

Underwriters:
The Benchmark Company (yes, same as FGI), Roth Capital

IPO Classification:
Low Float

Recent Similar IPOs: HOUR PIK STRN
Potential Comps: TTD… sort of a stretch given that TTD is much larger, but they both operate in the same general market, so comps are not unreasonable. DRCT is seeking a far smaller valuation.

Trading Strategy:
This IPO does not have anything that indicates a Stealth IPO setup, and I’m not sure how sexy this will appear to day traders beyond the ultra-low, float, but given the buzz around low float IPOs from last week, this one could get interesting, especially if MTEK runs. The $8 debut price leaves plenty of room to fall off the open (like VINE did), so again, we need to be watching the sell-side imbalance on the debut. If we see a heavy buy-side and only a slight increase in the debut indication price, then we may have a strong candidate for a debut run, but anythinog else would indicate a more conservative strategy. This one kind of feels like it could behave like STRN, which had a strong debut run for several days after the IPO, followed by a hard pull back, and then pumped even higher. The potential for a post-dip recovery run is pretty strong if this one doesn’t perform well out of the gate, so averaging down and holding for an eventual algo or trading group pump could be a prudent move if this slips on the debut. The bigger concern I have for this one is that if we see a strong performance by MTEK, the debut premium could get blown up to a rice that doesn’t provide for any further upside, but if the market remains in an uptrend going all the way through to Friday, there could be enough excitement around having another low-float IPO to trade for this one to run.

Brand Name Recognition:
Low.

Debut Trade Conviction Level:
Moderate/High. Play the debut conservatively, and be prepared to average down if it drops. There will be resonance from MTEK on this one, but I don’t think the company is as ‘sexy’ despite a smaller float, and a lot could change before the end of the week.

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Samsara Vision (SMSA) – February 4, 2022 | 4.16M Shares
Price Range:
$5.00 – $7.00
Offering Size:
$30M
Shares Outstanding:
22.49M

Industry: Medical Equipment

Overview:
Not to be confused with the recent IPO for Samsara (IOT), this company has developed an implantable miniature telescope technology that is embedded into the eye for treating vision loss due to macular degeneration. Which sounds pretty cool and futuristic, however, it is still in the early commercial stages in Europe and has not gone through the FDA certification for use or sale in America.

Considerations: The underwriter is ThinkEquity, a pretty well established third-tier underwriter whose offerings have been hit-and-miss. I don’t see any reason why this one should run right off the debut, and the float is not as low as DRCT, which also debuts on Friday. This one might be better put on a watch list for opportunities to accumulate into the quiet period.

Growth Numbers: Not really applicable as they are just in the early commercial stages of European market rollout and still have to go through FDA approval for US markets

Baseline Financials:
Also not really applicable.

Notes from the S-1:
– Risks: Have not started FDA approval.

Underwriters:
ThinkEquity

IPO Classification:
Low Float

Recent Similar IPOs: IINN BEAT MYNZ

Trading Strategy:
I don’t see any reason to play this one off the debut. Unless all low-float IPOs are catching fire throughout the week, and social media is ablaze with this one, the float isn’t quite low enough, and the product not really the kind of thing that captures the attention of general retail buyers. I get a feeling that some day traders will want this one to be more than it can deliver, and drive the debut price up only to have the rug pulled on the debut. This one has already been postponed at least twice, so expect full-allocations on WeBull, and allocation recipients are likely to bail at the first sign of weakness. From where I’m sitting – albeit days before the debut – this one has QPX play written all over it. Wait for it to drop for a couple days to the sub-$3 level and accumulate on hopes that a headline gets dropped once the Quiet Period Expires.

Brand Name Recognition:
Low.

Debut Trade Conviction Level:
Low. Unless allocations turn out to be minimal and social buzz is humming, I think this one is a wait and watch.

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Arcellx (ACLX) – Friday 4, 2022 | 8.25M Shares
Price Range:
$15.00 – $17.00
Offering Size:
$160M
Shares Outstanding:
136M

Industry: Phase I Biotech

Overview:
It’s a Phase I biotech developing cell therapies for cancer and other diseases. As a rule, I don’t touch these, and when I have broken that rule, it has never worked out. I will probably break that rule again at some point in the future, and expect I will lose money on it again (I am typing this for my own reference to remind myself to NEVER play pharmaceutical biotech IPOs).

Considerations: I know nothing about cell therapies for cancer, so I have no input other than 9 out of 10 biotech IPOs fall off the debut. If you’re looking to trade this at all, let it fall, wait… fall further, wait.. fall further… and then go trade something else.

Growth Numbers: N/A

Baseline Financials:
N/A

Notes from the S-1:
– Risks: Failure to achieve FDA approval, failure to raise money to get through FDA, and so on… biotech is tough, especially pharmaceuticals.

Underwriters:
BofA Securities and others

IPO Classification:
Biotech Bust

Recent Similar IPOs: AMLX VIGL (ironically, both of these have done relatively well since their IPOs, but both sank hard off their IPO debuts)

Trading Strategy:
I simply don’t trade these.

Brand Name Recognition:
Low.

Debut Trade Conviction Level:
Couldn’t be any lower

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