Globally leading high-frequency trading (HFT) and market making firm, Virtu Financial Inc. VIRT received wonderful reception to its initial public offering (IPO) yesterday. The company offered about 16.5 million shares in the IPO at $19 per share, attaining the upper-end of the targeted pricing range of $17 to $19, and gained 16.7% by closing at $22.18. Meanwhile, shares of Virtu scaled as high as $23.67 at one point of its first trading session.
The company raised about $314 million from the IPO, leading to a total valuation of about $2.6 billion. Additionally, Virtu has granted about 2.5 million shares to underwriters, who have the option of purchasing these shares in the next 30 days.
Meanwhile, the company’s chief executive officer, Vincent Viola, owns 95% of the common shares. Virtu plans to use most of the proceeds of the IPO to buy common shares of Virtu Financial LLC from some of its pre-IPO equity holders, while the remaining is expected to be utilized for enhancing the operating leverage of the latter.
HFT is computerized high-speed trading that Virtu provides in over 225 exchanges, markets and dark pools, covering about 34 countries globally. Based in New York and armed with about 148 employees, the company is also an entitled market maker for NYSE and NYSE Amex. Through this, it simultaneously offers to buy and sell in more than 10,000 securities and other financial instruments, in order to seek petty margins between those prices.
As a market maker, Virtu also enabled standardization of securities exchanges and electronic firms, thereby maintaining transparency and liquidity while trading huge volumes.
Delayed IPO
Virtu is the first HFT company to go public, the filing of which was done in Mar 2014. However, the IPO was delayed last year given the hullabaloo amid the stock market favoring high-speed traders who in turn are minting billions, a fact that is also highlighted in Michael Lewis’ book “Flash Boys.” This also impelled the regulatory probe against offensive practices in the HFT industry.
Virtu faced further criticism over its statement of havingincurred only one day of loss in the past five years and having a winning rate of 51% to 52%, thereby unconsciously proving confirmation of the claims. It was assumed that the remainder comprised losses and resulted in a win-loss ratio of 1:1, thereby making Virtu so profitable.
Should You Consider Investing in Virtu?
The postponement of the IPO appears favorable for Virtu as most of the allegations against the HFT industry have subsided now. Interestingly, a recent study by Gregory Laughlin verified that the win-loss ratio was about 2:1 as one-fourth of the trades broke even, causing them to neither lose nor win. This helped the market gain insight into the realistic way of how such firms operate.
Moreover, Virtu holds decent long-term growth prospects fundamentally. This is due to the rising demand of market makers for high-speed and accurate trading among exchanges and dark pools. Additionally, the company’s diverse trading, seamless business model, prudent risk management tools and product profile also help it to tap the global market extensively.
On the financial front, Virtu garnered about $190.1 million in 2014, up from $182.2 million in 2013. The company had an average of about 5.3 million trades per day last year. Going ahead, the winning rate is expected to be about 49% in 2015. Virtu also aims to shell out 70% to 100% of its net income as dividends, the first one worth 24 cents likely to be paid in third-quarter 2015.
We believe strong demand in the global market and management’s consistent growth initiative along with plans to reduce market-center costs will likely boost financials in the future as well. Hence, for an investor it would a good idea to keep a watchful eye on this stock in the coming period.
Simultaneously, other sector companies like KemPharm Inc. KMPH, Etsy Inc. ETSY and Party City Holdco Inc. PRTY, reported strong debuts alongside Virtu. Notably, Etsy was priced at $16, as its IPO raised $267 million and shot up 88%. Priced at $17, Party City surged 22% and raised over $370 million. Both Virtu, KemPharm and Etsy are listed on the Nasdaq exchange, whereas Party City got a public spot through NYSE.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment