Self-Publisher Lulu Lowers IPO Expectations

Self-Publisher Lulu Lowers IPO ExpectationsGetting paid by authors to publish their books is a booming business, and never was this more evident than in 2009. While the number of traditionally published books dipped by about 0.5% to 288,355 last year, self-published works were way, way up -- to an eye-popping 764,448 titles, according to book industry research company R.R. Bowker. But take that number with a healthy grain of salt: The vast majority of that total derives from public domain works brought back into print. "Only" 57,500 books that genuinely qualify as self-published were released last year.

Still, even the smaller number is impressive, and Lulu.com, a firm based in Raleigh, N.C., that lets authors publish their own books and sell them directly to their audience, contributed a respectable fraction to that total, bringing out 10,386 titles in 2009. The company's prolific output was a big factor in why it announced plans for an initial public offering in Canada back in January. Expectations for the per-share price climbed as high as $9.50 and Lulu thought it would raise as much as $70 million. The reality, as it turns out, is more tempered.

Buy-side sources told the Dow Jones newswire that Lulu is now expected to price its IPO at $7 a share. The company also lowered its projections for how much money they can raise to $60 million, which they expect will come from the combined treasury and secondary offerings as well as a private placement. The share price downgrade appears to be the result of inflated valuation, since Lulu -- despite releasing thousands of titles -- is still losing money (Lulu did not say how it fared in 2009, but the company did report a 37% spike in revenues between 2007 and 2008.)

Lulu CEO Bob Young, co-founder of open-source software company Red Hat (RHT) and owner of a Canadian football franchise, also caused concern among potential investors that 35% of the IPO proceeds would be used to pay off part of a loan he made to Lulu so it could expand its operations. On the flip side, according to the IPO prospectus, Young has agreed to cancel the other part of the loan in exchange for Lulu shares valued at the IPO price, which investors should see as a sign that the CEO has faith in his company.

Offering a lower-than-expected IPO price may end up helping Lulu out in the long run, as might its decision to trade on the Toronto Stock Exchange. As IPOScoop.com publisher John Fitzgibbon explained when the news first broke, by listing its stock up north, the company "will likely pay less in costs than an IPO on a U.S. exchange, and Lulu won't have to submit to the same rigorous regulatory scrutiny." Combine that with a stock market that has been showing signs of revival and an industry showing explosive growth, and potential shareholders may want to start investing sooner rather than later.
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