Why the TEMPLE WEB FPO share float was a dud

Temple & Webster Group, or TEMPLE WEB FPO (ASX: TPW) as it is listed on Google Finance, has endured a very disappointing start to life as a public company.

The online furniture and homewares retailer listed its shares on the ASX on Thursday and, although the Fairfax press reported its initial public offer (IPO) was oversubscribed even at $1.10 per share, the shares tanked on their first day of trade. They fell as much as 33.6% below that price to 73 cents, before ending the day 18% lower at 90 cents. They’ve since lost another 1.1% to trade at 89 cents.

One of the reasons behind the company’s lacklustre debut could be the performances of companies that have also only listed their shares on the ASX recently.

Spotless Group Holdings Ltd (ASX: SPO) is one of the primary examples after its shares plunged recently following an announcement the company was struggling to integrate new business acquisitions into the group. Dick Smith Holdings Ltd (ASX: DSH) is an even more relevant comparison – the retailer listed its shares on the ASX in December 2013 and recently crashed following a major inventory write-down.

It’s also possible that investors are being cautious not to get too excited about the prospects of Temple & Webster. Indeed, the company’s business model is reliant on consumers letting go of the need to see and touch items of furniture in-store before making a purchase.

It’s worked for various other items and for many retailers, but furniture could be a different story. Figures presented by Temple & Webster suggest online furniture sales are reasonable in the US and Britain, but still have low penetration in Australia.

What’s more, the company has a history of losses. It’s young and heavily focused on marketing to raise brand-awareness so that isn’t necessarily a bad thing, but it is a risk nonetheless. It’s expecting a pro forma loss of $9.5 million this year, down from an $11 million loss in the year prior.

Aside from being disappointing for investors who bought into the float, Temple & Webster Group’s weak share market debut should also act as a word of caution to others looking to buy into fresh IPOs in the hope of a quick ‘pop’ – it doesn’t always happen!

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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