The market for initial public offerings has taken a hit, and it would be easy to lay the blame on an overhyped office-sharing outfit and a maker of $2,000 exercise bikes.
Reality is more complicated though. The fact is, even many of the seemingly hot debuts this year have been much less so for most ordinary investors. Most big new tech issues from this year are trading below their opening prices on the first day of trading. That includes several that scored strong first-day “pops” relative to their public offering prices. This was the case even before WeWork pulled its listing plans last month, casting a pall over the IPO market that carried over to Peloton’s disappointing debut late last week.
Of the 14 notable tech IPOs so far this year, only four—Zoom Video, Pinterest, Fastly and Cloudflare —are currently above their first-day opens, based on Monday’s closing prices. Note that Cloudflare went public only a week before the WeWork fiasco. The broader IPO market has fared a little better, though not by much. Only 32% of IPOs tracked by Dealogic this year are above their opening prices.
There are certainly some outliers. The red-hot veggie burger startup Beyond Meat has more than tripled from its first-day open.
Cases like that are rare, though. For most new tech issues, the biggest gains come up front. Relatively few investors get access to new shares at the listing price. For those who do, the gamble pays off more often than not. More than two-thirds of the tech companies that have gone public this year are above their IPO price, with the average size of that gain at 43%. About 58% of all the IPOs tracked by Dealogic are above their listing price.
But for the majority of investors who have to wait for trades to open, the returns aren’t so glamorous. CrowdStrike’s shares popped more than 70% from the listing price on the first trading day in June, but the stock is also now 8% below its first-day open due to a poorly received quarterly report—and a surprise mention in President Trump’s now infamous call with the Ukrainian president. Fiverr, which provides an online marketplace for freelancers, is now 28% below its opening price despite a 90% IPO pop.
These situations sometimes improve over time. Zscaler, another young cybersecurity outfit, went public in March of last year and made scant gains relative to its open during the first few months. The stock picked up serious steam earlier this year, and is now more than 70% above its first-day open. But slightly over half of last year’s major tech debuts are still down by that measure, serving as a good reminder that investing in young tech companies isn’t for the masses—or the faint of heart.
Write to Dan Gallagher at dan.gallagher@wsj.com
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2019-10-01 10:30:00Z
https://www.wsj.com/articles/tech-ipos-arent-working-for-the-masses-11569925801
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