E-Mailbag Monday: Sequoia IPO, Intuit, Employee Stock Options

What’s good in the IPO market this week?

Reply: Yet again, the IPO market has been anemic. Yet, it is times
like this that you can typically find strong companies at reasonable
valuations. One of the few IPOs for the week is Sequoia Software. And, with
little competition for investment dollars in the IPO market this week,
Sequoia may have a chance at a good performance.

The company is a developer of XML (extensible markup language) applications.
XML is becoming a standard method for building sophisticated solutions.
Sequoia has its own standard called the XML Portal Server, which helps
companies integrate customers, suppliers and anyone else.

The lead underwriter is Lehman Brothers and the proposed ticker symbol is
SQSW. The company intends to sell 4.2 million shares in the price range of
$8-$10.

Intuit Still Good?

What’s your opinion on Intuit?

Reply: I wrote about this company before the NASDAQ had its massacre.
Like just about every other tech stock, Intuit (INTU)
also plunged. But the fact remains that Intuit has an incredible array of
lucrative properties. It is a mega hub of people’s personal finances. At
current valuations, it seems that a company like Intuit would make an
attractive buyout candidate for a company like Schwab.

P-E ratio? You bet. And it is affordable: a mere 19 times. Although, keep in
mind that Intuit is a seasonal business, with much of the company’s profits
generated during the tax season. But, this may make it more likely that the
company will be buyout bait in the next few quarters.

Of course, Intuit is leveraging its technology and offline distribution onto
the Web. This should help spark growth. Last February, Quicken.com logged
4.4 million unique visitors. Also, Intuit is rapidly becoming an all-purpose
service provider, offering such things as insurance and mortgages – which
should dampen the seasonality. Eventually Intuit may become a Schwab.

Stock Options: What to do?

I have employee stock options in a Net company I work for. Some of the
shares have vested. Should I sell or keep them?

Reply: The decision to exercise stock options is not an easy one. The
tax complications can be mind boggling – especially if the options are ISOs
(incentive stock options). For example, they may either be taxed as ordinary
income or capital gains, which could be a huge difference in taxes paid to
the IRS. Then again, in order to get preferential treatment, you need to
hold onto your stock for at least a year after you exercise the shares or
two years after the options were granted to you. With the extreme volatility
in the markets, it oftentimes makes sense to sell some shares, so as to
diversify. To protect yourself, you need a plan. So, it is a smart idea to
get a financial planner who specializes in these matters.

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