On June 21, Tencent Securities reported that earlier this year, online car hailing companies Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) had both adopted IPO (initial public offering) to go public. When Slack (NYSE: WORK) said that they would not adopt this traditional listing method, but would go public directly, The traditional view is that this company wants to avoid a difficult year for technology IPO. But is this view correct? The answer is no.
This news platform has sufficient funds and high brand awareness, but it took an unconventional path when it was listed. So far this year, many technology companies have gone public. "We made the decision to go public last year." Allen Shim, Slack's chief financial officer, said in an interview with the US financial media MarketWatch earlier Thursday that the company was officially listed a few hours later. "For now, listing helps us improve our reputation in the investor and enterprise markets."
Slack chose the way of direct listing - that is, allowing investors to sell shares in the public market -. The company set the reference price at $26 per share on Wednesday night local time in the United States, and its market value was $15.7 billion. On Thursday, the stock rose sharply to $38.50, then hit a high of $42, with a market value of more than $20 billion.
The direct listing of this company provides a new sign, indicating that although the two largest IPOs this year, Uber and Lyft, have both performed poorly, the demand for technology stocks in the public market is still strong.
Since this year, many technology companies have gone public, starting with the photo sharing service PInterest (NYSE: PINS), followed by the plant based artificial meat company Beyond Meat Inc. (NASDAQ: BYND), and then the video communication platform Zoom (NASDAQ: ZM). According to the data provided by Renaissance Capital, which provides institutional research and IPO exchange traded funds (ETFs), so far in 2019, the total amount of IPO financing of all companies has reached 26.7 billion dollars, of which technology companies account for 58%. Uber alone sold $8.1 billion worth of shares in its IPO in May.
In addition, Airbnb Inc., WeWork, Palantir Technologies and PostMate, a food distribution service, are expected to be listed later this year.
"Obviously, institutional investors have a huge appetite for new shares," Lise Bayer, founder of Class V Group, said in a telephone interview with MarketWatch.
The success of Slack may affect Airbnb and WeWork. It has been reported that both companies are considering direct listing. Bayer believes that only a few companies have the ability to go public directly, and the reason why these two companies are among them is that they are "extremely well funded" and have strong brand awareness.
Several US technology companies will go public next week
Before Uber's IPO, several American technology companies raised a total of 6.6 billion dollars this year. According to the data provided by CB Insight, a market research company, four of them - Lyft, Pinterest, Zoom and PagerDuty - currently have a combined market capitalization of $63.5 billion. Uber's market value is now $74 billion.
Although Uber and Lyft did not perform well when they were listed and then rebounded, in fact, overall, the performance of technology IPO transactions was quite good. Matt Kennedy, senior IPO market strategist of Renaissance Capital, said that the average share price of 66 IPO listed companies has risen by 30% so far this year, compared with an average rise of 38% for 16 technology companies. Over the same period, the S&P 500 index rose 16%.
SharesPost research shows that as of Monday, Zoom had the best performance in the share price of technology companies IPO this year, with a cumulative increase of 172%; PagerDuty Inc. (NYSE: PD) took the second place, with a cumulative increase of 130%; CrowdStrike (NASDAQ: CRWD) ranked third with a cumulative increase of 101%. In contrast, Uber's share price fell by 4% compared with its IPO price, and Lyft's fell by 15%.
Bayer said that despite the poor performance of high-profile technology companies such as Uber and Lyft after IPO, these companies have successfully raised huge amounts of cash. "Obviously, they want to see their share prices rise, but over time, we will see how they use the money," she said.
Three technology companies are expected to go public next week, of which Change Healthcare Inc. is the largest one with the stock code of "CHNG". It is expected that the company will raise up to 750 million dollars when it goes public on June 26. The other two companies are Linx S.A. (stock code: LINX) and Cambium Networks Corp. (stock code: CMBM) from Brazil. IHS Markit, a market research company, predicts that the sum of the funds raised by these two companies will reach 200 million dollars.
In general, 66 companies have been IPO listed so far this year, raising a total of 26.7 billion US dollars, compared with 82 companies IPO listed in the same period last year, raising a total of 25 billion US dollars. In 2017, a total of 66 companies were IPO listed in the US market, with a total fundraising of $17.5 billion.
The software industry is booming
Matt Murphy, a partner of Silicon Valley venture capital firm Menlo Ventures, said that technology companies listed this year benefited from the change in the public market's view of IPO companies. Murphy focuses on investing in end-to-end digital workflow, including software as a service and robotics.
"In the past few years, people have been saying that the private market is ahead of the public market, but now the public market is starting to operate like the private market." Murphy said that he invested in DocuSign Inc. (NASDAQ: DOCU), which was listed last year.
According to Murphy, companies such as ServiceNow Inc. (NYSE: NOW) have stimulated investors' interest in the public market because they have adopted a subscription model that is easy to predict. At the same time, there are two other types of companies that have also stimulated investors' interest. One is the so-called "bottom-up" companies, such as Slak and Zoom, whose products first achieved viral growth among consumers, and then were adopted by large organizations; The other is companies with "major ideas", such as Beyond Mat and Tesla (NASDAQ: TSLA).
"Although there are many technology companies preparing for IPO, the sell-off at the end of last year had an impact on IPO activities in the first quarter of this year." Kennedy of Renaissance Capital told MarketWatch. "However, from the perspective of IPO revenue and transaction volume, it seems that the U.S. IPO market in the second quarter of 2019 will surpass that in the second quarter of last year."
Ted Smith, president of Union Square Advisors LLC, an investment bank focusing on technology stocks, said that although the global economy is facing uncertainty and political and regulatory resistance is also great, it is expected that the U.S. IPO market in the second half of this year will also be better than that in the same period last year.
"There are so many capital in the market, including private capital, public capital and late stage investors," Smith said in a telephone interview. "I remember that in the past, if the number of IPO listed companies reached 20 or 30, it would be considered as a bad thing. Now it has entered a new era, and IPO transactions are getting bigger and more, and companies have sought to raise funds in the public market."
"In 2011, Marc Andreessen, the co-founder of top venture capital Andreessen Horowitz, once wrote that software is devouring the world." Todd McKinnon, the co-founder and CEO of Okta Inc. (NASDAQ: OKTA), told MarketWatch. "Today's software industry is booming. We now realize that every company must become a technology company to keep up with the pace and development of the times. The current situation of the U.S. IPO market proves that there are market opportunities“
So far this year, the Renaissance IPO ETF has risen by 39%, while the Renaissance International IPO ETF has risen by 15%, compared with the Dow Jones Industrial Average rising by 15% and the Nasdaq Composite Index rising by 22% over the same period. Nebula