Retirement plan advisory firm Financial Engines shares soar in IPO debut after raising $127M

Financial Engines shares soar in trading debut

NEW YORK — Shares of Financial Engines Inc. soared nearly 44 percent in their market debut Tuesday, giving the portfolio manager and advisory firm the best first-day IPO performance so far this year.

Financial Engines’ first-day gain is the third-highest in the past 12 months, coming in behind online restaurant reservation company OpenTable Inc., which rose 59 percent on its first day of trading last May, and battery maker A123 Systems Inc., which climbed 50 percent in its debut in September.

Its rise was slightly better than language software company Rosetta Stone Inc.’s, which gained nearly 40 percent in its April 2009 initial public offering. About 80 companies have gone public in the past 12 months.

The Palo Alto, Calif., company, which was founded in 1996 by William Sharpe, a Stanford University finance professor who won a Nobel prize in economics, earned a warm reception from investors even before the shares began trading on the Nasdaq. Monday night, the company sold its shares to initial investors for $12 apiece, raising $127.2 million — above the $9 to $11 per share it said it expected in its offering documents. It’s the first IPO since mid-November to fetch more than its expected range.

Financial Engine’s success may signal an improving IPO market. About 60 percent of companies going public have sold shares for less than they had hoped this year as a volatile stock market made investors wary.

In trading Tuesday, Financial Engines shares jumped $5.25, or 43.8 percent, to close at $17.25, and traded as high as $17.36 earlier in the session.

“This is a sign of coming attractions,” said John Fitzgibbon, who tracks IPOs for IPOScoop.com.

The IPO market nearly dried up during the recession but began charging back with a flurry of offerings in the fall. Then, in December, the pace of IPOs began to slow and companies began having trouble selling shares to nervous investors. Many companies had to slash offering prices to get deals to market, while others delayed or canceled their IPOs.

In recent days, the market began to see some signs of life. Last week, three of four companies priced shares of their IPOs within their expectations.

To be sure, Financial Engines, which offers investment advice for employer-sponsored retirement plans, has more going for it than an improving IPO landscape. The company, which booked a 19 percent increase in revenue in 2009, expects sales to continue to increase as baby boomers look for help managing money through their retirement years, and to capitalize on changes in how corporations help workers save. Companies are shifting from providing pensions to supplying retirement plans such as IRAs and 401(k)s, and they are increasingly automatically enrolling employees in these retirement plans rather than having them opt in. Financial Engines turned its first profit in 2009.

“Their growth in assets under management is exponential,” said IPO analyst Scott Sweet of IPOBoutique. “Their target market is the smaller investor — it’s a huge market, untapped. … That’s where Financial Engines comes in.”

Moreover, founder William Sharpe has “extraordinary” credentials, Sweet noted.

While Financial Engines’ success strikes an upbeat tone, one highly successful IPO may not whet investors’ appetite for all offerings, Sweet said. Many investors continue to be focused on high-profile offerings from companies like electric car maker Tesla Motors Inc.; prepaid financial services company Green Dot Corp.; and video game rental service GameFly Inc., which all have IPOs in the works.