This week, The Street’s Rex Crum interviewed Sichenzia Ross Friedman Ference LLP Partner Gregory Sichenzia on how major big brand tech stock prices having been dropping recently. Read the live article here or view the full transcript below:
As Twitter and GoPro Plunge, What Does That Mean for Upcoming IPOs?
Investors cashing out on tech IPOs is nothing new, but as big tech companies continue to see their share prices sink, that’s setting up a very real concern in Silicon Valley.
In the last week, investors have spent more of their time cashing out of popular tech IPOs such as Twitter (TWTR –Get Report) and GoPro(GPRO – Get Report) , and sent those company’s share prices below their initial public offering levels. And now there’s a sense of uncertainty about whether other newly public tech companies can remain above their public-debut prices, and if the appetite for tech IPOs is drying up just as popular names like Square and Match Group (MTCH) prepare to go public.
“Some of these companies are seen as one-trick ponies,” said Scott Sweet, senior managing partner of Lutz, Fla.-based IPO Boutique, a research firm specializing in corporate stock offerings. “The market is in a difficult period now. IPOs are risky by nature, and if not priced right, can turn negative.”
It took looking no further than looking at the recent performances of Twitter and GoPro to see how negative sentiment has turned against what had been some IPO darlings.
Twitter, which went public on Nov. 7, 2013 at $26 a share, fell below its IPO price for the first time last week and has seen its shares fall nearly 30% since the start of the year. Many of the issues with Twitter surround the company’s revenue outlook and slow growth in its user base. In October, Twitter forecast fourth-quarter revenue between $695 million and $710 million, which fell short of the $739.7 million in sales forecast by analysts surveyed by Thomson Reuters. Twitter also said monthly active users of its service during the third quarter rose just 1% from a year ago, to 320 million.
GoPro shares also fell last week to below the $24 price level from the company’s June 25, 2014 IPO. Shares recently changed hands at less than $22, having plunged more than 65% since the start of the year. Cloud-based file sharing and content management company Box (BOX) , which priced its Jan. 23 IPO at $14 a share, has also plunged, having seen its shares drop more than 40% since its first day of trading.
“Investors are pickier now and are looking at profits as opposed to revenue growth, which doesn’t bode well for start-up companies looking to go public,” said Gregory Sichenzia, a partner with New York-based securities law firm Sichenzia, Ross, Friedman, Ference who has represented and advised companies and investment banks during their initial public offerings.
Sichenzia, who said there have been only 18 tech-specific IPOs this year, pointed to the case of Square as an example of a company that may have its IPO dreams turn out not as well as it hoped.
Square, which is headed up by Twitter CEO Jack Dorsey, is hoping to price 27 million of its shares at between $11 and $13 when the company’s stock is expected to begin trading on Thursday. But Sichenzia said that a recent regulatory filing by Square showing the company’s valuation at $3.9 billion, compared with $6 billion a year ago, suggests it is seeing some hesitation from potential IPO-stage investors. And Square’s net losses of $77.6 million in the first half of 2015, which came on top of $79.4 million in losses during the same period a year ago, aren’t helping bolster the company’s cause.
“Square will face problems since they are a start-up with mounting losses,” Sichenzia said. “The valuation seems artificial and may tank below the IPO price as investors determine its true value.”
Match, which is owned by IAC/Interactive (IACI – Get Report) and runs the Match.com and Tinder online dating sites, among others, is also slated to begin trading on Thursday, with 33.3 million shares hoping to be priced between and $12 to $14. However, Match has profitability going for it, with earnings of $148 million in 2014, up 16.5% from $127 million in 2013.
I do know Match is getting more traction than Square,” said Sweet, of IPO Boutique. “But overall, we have had far fewer IPOs in 2015 than last year.”
And there’s a sense that the market may remain skittish toward tech IPOs in 2016.
Law firm Morrester & Foerster recently released the results of its semi-annual M&A Leaders Survey, which was done in conjunction with market-intelligence firm 451 Research. Of the survey’s 151 corporate executives, investment banking and venture investors, 43% expect tech IPOs to slow down next year, while 29% said they believe IPOs will rebound. Earlier this year, 41% of the survey’s respondents thought the IPO market would improve.
“This is trending to look like an ugly market for IPOs,” said Rob Enderle, director of tech research firm The Enderle Group. “There’s too much uncertainty, and as we get closer to the [2016] elections this is likely to degrade further.”
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