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| Like a Virgin, traded for the very first time |
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| Thursday, 22 July 2004 | |
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22
July, 2004: The IPO of Virgin Mobile was seen as a barometer of tech
market sentiment. In the end, neither the iconic reputation of serial
entrepreneur Richard Branson nor VM's tidy foothold in the UK mobile
services market was enough to capture the market's imagination. This
may be the most sodden of squibs… One prominent strand of market thinking in today's ICT arena is that a handful of headline-grabbing and successful IPOs would kickstart share performance in the beleaguered high-tech sector. At the height of the boom, the hunger for technology shares saw new economy stocks gobbled up by individual and institutional investors alike. After the crash, the IPO-wallahs walked away muttering "that was then, this is now and I'm not enjoying now at all" and bemoaning the fact that they had failed to become quick-fix millionaires along the way. Already a millionaire, [Sir] Richard Branson's plan to float a stake in his Virgin Mobile (VM) mobile virtual network operator (MVNO) business thus had to be placed in a number of quite different categories. Personal greed never entered into it: the float could hardly be described as 'optimistic' or 'opportunistic'; nor, however, does it constitute another example of the gold-fingered entrepreneur turning dust into cash. Originally, VM had hoped to float up to 40% of the company at up to UK£2.85 per share. By yesterday, a revised price of UK£2.00 per share was needed to flog just 25% of the company – with tepid early trading on the bourse once the basement-level price was agreed. The sale values VM at almost half of what analysts had expected just a few weeks ago. So is the outcome of this IPO good, bad or indifferent? It's good if you think that hauling in US$200mn in free cash in the current market is a success. They could not have contemplated this, say, two years ago. It's bad if you think that such a sum is ludicrously small for a stake in an MVNO which claims to have 5mn customers. Above all, it's indifferent. Analysts appear to have decided that the MVNO model, applied to a mature and saturated mobile market such as the UK, has an unexciting prospect ahead of it. Branson's plan to pull receipts from the VM float and plunge them into a low-cost US-based airline are hardly designed to encourage confidence in the long-term future of the MVNO business. Just as importantly, Branson has failed to tie his mobile brand identity into other service sectors through which he strides, from alcoholic drinks to transport. Branson enjoys a uniquely favourable reputation among those who are customers of his businesses. I once sat behind him in a public arena and was left in wonderment at (a) his popularity among anyone and everyone and (b) the equanimity with which he handled even the most intrusive requests for photos and autographs. What a nice man! And what happens when nice men get their sums wrong? Watch the performance of Virgin Mobile to find out. Jim Chalmers |
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