Hot IPO: Retirement-savings advisor Financial Engines soars in debut
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With millions of aging baby boomers struggling to manage their retirement nest eggs, Wall Street thinks it sees a genuine growth business in investment advisory firm Financial Engines Inc.: The company’s initial public stock offering soared on its first day of trading Tuesday.
Palo Alto-based Financial Engines, founded by Nobel laureate William Sharpe, priced its IPO at $12 a share late Monday. The stock jumped $5.25, or 44%, to close at $17.25 on Tuesday on Nasdaq.
That makes it the third-hottest IPO debut of the last 12 months, according to Renaissance Capital’s ipohome.com research service.
Financial Engines uses computer programs to decide how to allocate investors’ assets within 401(k) retirement accounts. In the prospectus for the stock offering, the firm said the number of individuals using its professional management service -- meaning they’ve fully delegated portfolio decision-making to the company -- rose to 391,000 at the end of last year from 322,000 at the end of 2008 and 227,500 in 2007.
Sharpe, the Stanford University finance professor who developed the Sharpe ratio -- which compares an investment strategy’s reward with its level of risk -- launched the company in 1996. He has since retired, although he remains a director emeritus.
Financial Engines’ chief executive is 41-year-old Jeffrey N. Maggioncalda, a Stanford MBA who has been at the helm since he was 27.
Total assets directly managed by the company climbed to $25.7 billion at year’s end, up from $16.3 billion two years earlier.
Financial Engines said it provides services to employees of 116 of the Fortune 500 companies. The firm believes it has substantial room for growth: Typically, only about 10% of employees in a corporate retirement plan now tap the company for professional management. . . .
Financial Engines also offers other lower-priced, online advisory services to individuals who manage their accounts for themselves.
All told, the company’s revenue rose to $85 million in 2009, up 19% from 2008. The business swung from a loss of $6 million in 2008 to a profit of $4.6 million last year -- the company’s first annual profit. That paved the way for the IPO.
As for competition, Financial Engines faces plenty: It goes up against advisory services from Morningstar Inc., GuidedChoice and ProManage, among others. It also competes against increasingly popular target-date retirement funds, which automatically reallocate assets based on investors’ expected retirement date.
In the IPO, which was managed by Goldman Sachs, Financial Engines raised $70 million by selling 5.87 million shares. It plans to use the proceeds to expand the business.
Existing shareholders, including individuals and investment funds, cashed out $57 million by selling 4.73 million shares in the IPO.
The company now has 39.5 million shares outstanding.
-- Tom Petruno