Hot air keeps hissing out of it.
Shares of parcel-delivery company ZTO Express dropped another 4.9% today on the New York Stock Exchange and closed at a new all-time low of $15.20. The previous all-time low had been obtained the day it went public on October 27: it plunged 15% from its IPO price of $19.50. The IPO had raised $1.4 billion, the largest US IPO of 2016.
It is now down 22% from its IPO price. The company is based in Shanghai and doing all its business in China. Why did it go public on the NYSE? We assume because that’s where the money is.
And because its toxic dual-class share structure is illegal in China. It gives founder Lai Meisong 80% voting power in the company. The shares traded on the NYSE are not actually shares of the Chinese company anyway, but shares of a “variable-interest entity” set up in the Cayman Islands, which is contractually entitled to the profits of the Chinese company.
But that can’t be the reason the shares have plunged. Alibaba has a similar setup, and US investors have swallowed it hook, line, and sinker.
“The air is starting to come out of these highly valued technology companies,” explained Kathleen Smith, principal at Renaissance Capital, the day of the 15% plunge that came after some US Tech IPO stocks had already plunged.
But the underwriters took their fees and smiled, including Morgan Stanley, Goldman Sachs, China Renaissance, Citigroup, Credit Suisse, and JPMorgan Chase.
After a historically terrible first quarter and a very crummy first half, IPOs were stacking up in the pipeline with sky-high “valuations” and no place to go. But as markets were recovering from the February trough, Wall Street hoped that after Labor Day, the pipeline would burst open, and IPOs would gush out into the soaring markets, and money could once again change hands.
And this sort-of happened. September 5, Dealogic announced that technology IPOs “are poised for a rebound in September” and called it the “September IPO comeback.”
By the time the month was over, globally 32 Tech IPOs had been pushed out that infamous “IPO window,” which is only open when markets are riding high, and when anything gets bought. $4.3 billion were raised. According to Dealogic, it was the third most active September on record for the Tech sector, “following the tech bubble years of 2000 (49 IPOs, $2.8 billion) and 1999 (46 IPOs, $2.5 billion).”
So that was promising.
Only 17 Tech IPOs had made it by Labor Day, the lowest for the period since 2009. The September generation of six Tech IPOs in the US included the second “unicorn” to go public this year, Nutanix. It raised $238 million on September 29. The first “unicorn” to make it this year was Twilio, which raised $173 million in June.
In October, things looked even rosier, according to Dealogic: 21 IPOs priced on US exchanges, making it the busiest month since June 2015.
Alas, it’s already falling apart.
The big star this year, Twilio, which soared from its IPO price of $15 a share to $70.96 by late September, has since gotten crushed. Today, it closed at $31.53, down 55% in just five weeks.
Nutanix, which shot from its IPO price of $16 a share to $46.78 in two days, closed today at $24.13, down 48% in one month.
These were the big IPO heroes. In the broader IPO space, the scenario has lost its rosy glitter as well. The Renaissance US IPO Index, which tracks stocks for two years after their IPO, is now down 6% year-to-date, down 21% since its peak in April 2015, and down 8% from its recent peak on September 22.
This doesn’t mean that there won’t be a lot more IPOs. And some will actually turn into wildly successful, profitable companies, like Twitter…. Oh well, scratch that. Bad example.
October was merger-mania month: five of the largest 11 US-focused acquisitions in 2016 were announced in the last ten days of October, including two that broke industry records. Read… Is Merger-Mania October the Classic Paroxysm before it All Comes Unglued?
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