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UPDATE 3-Nobel laureate's firm spikes 44 pct in debut
March 16, 2010 / 3:23 PM / in 8 years

UPDATE 3-Nobel laureate's firm spikes 44 pct in debut

* Closes at $17.25, 44 pct above IPO price

* Trading on Nasdaq under symbol “FNGN” (Adds detail on revenue, stockholders, analyst comment)

By Clare Baldwin

NEW YORK, March 16 (Reuters) - Shares of Financial Engines Inc (FNGN.O), which sells financial analysis based on the work of Nobel laureate and co-founder William Sharpe, closed 44 percent above their initial public offering price on Tuesday, making it the best IPO performance in months.

Financial Engines provides independent portfolio, investment and retirement advice, and expects demand for its services to rise, it said in a securities filing.

Many “Baby Boomers” will reach retirement age over the next few years do not have enough savings to retire and will seek advice for dealing with volatile markets and government regulations, it said.

“They have a lot of headroom for growth and that’s exciting to investors,” said Paul Bard, an analyst at Connecticut-based Renaissance Capital. Financial Engines also has proved it can grow aside from a cyclical rebound in the market, Bard said.

“There are lots of stocks to buy in companies that are already public to play on a cyclical recovery,” he said.

Financial Engines makes money by charging fees based on the amount of assets it manages and on subscriptions.

It had contracts with more than 760 retirement plan sponsors with 7.4 million participants topping $500 billion in retirement savings as of Dec. 31. The company said it had agreements to manage about $25.7 billion in assets for about 391,000 individuals.

Financial Engines estimates that it is tapped into a network of retirement plan providers with more than $1.5 trillion in assets.


Financial Engines has grown its revenue each year for the past five years and posted a 19 percent increase to $85 million in revenue in 2009.

It also swung to a profit in 2009, posting net income of $5.7 million compared with a $3.6 million loss a year earlier, according to a filing with the U.S. Securities and Exchange Commission.

Financial Engines’ growth prospects, recurring revenue and increasing gross margins are attractive to investors, said President Francis Gaskins.

Revenue from contracts in place in 2008 accounted for about 99 percent of 2009 contract revenue, according to a filing. Contracts typically last for three to five years and renew automatically for a year at a time unless either party cancels, according to a filing.

Financial Engines said it has retained more than 96 percent of its contract business each year since it launched the business in 2004.


“Sharpe is icing on the cake for investors,” Gaskins said. “It’s a way to differentiate (Financial Engines) for its target market. It gives potential customers a feeling that they are going to be OK.”

Financial Engines co-founder Sharpe jointly won the Nobel Prize in Economic Sciences in 1990 for his work on financial theory, including how assets are priced and the Sharpe ratio, which measures the relationship between risk and reward.

Sharpe serves as a director emeritus for Financial Engines and is a professor emeritus at the Stanford Graduate School of Business.

Shares in Palo Alto, California-based Financial Engines opened 26 percent above the IPO price at $15.14 and closed up more than 43 percent at $17.25 on the Nasdaq.

Financial Engines on Monday was the first initial public offering in the United States to price above its expected range this year. The Palo Alto, California-based company sold shares for $12 each, ahead of the $9 to $11 it had filed for.

Even so, the company cut the number of shares it sold. It had filed to sell 10.9 million shares, but lowered that to 10.6 million shares in a later filing. The company on Monday sold 10.6 million shares.

Many companies this year have cut their IPOs as investors hesitate to assign high values to unproven companies with uncertain growth prospects or stiff competition. Some deals have been postponed or canceled.

Investors in Financial Engines include funds associated with venture capital investors Foundation Capital Leadership Fund and New Enterprise Associates, and private equity investor Oak Hill Capital Partners.

Financial Engines sold 5.9 million shares in the IPO, according to a regulatory filing. The remaining 4.7 million were sold by a large number of individuals including Henry Kravis, trusts and companies including Intel Corp (INTC.O).

Goldman Sachs and UBS Investment Bank are the lead underwriters. The company trades on Nasdaq under the symbol “FNGN.”

For additional Breakingviews commentary please see [nN16128312] (Reporting by Clare Baldwin. Editing by Robert MacMillan)

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