Tech IPOs see big drop in Q3, but there is hope for Q4

Steven Loeb · October 2, 2017 · Short URL:

Companies may have been scared off by Snap and Blue Apron underperforming

Correction: this article had incorrectly stated how much MongoDB is raising in its IPO

At first, 2017 seemed like it was going to be even better than 2016, with some very well known startups, including Cloudera, Mulesoft, Okta, and Yext going public. Recall the second half of last year looked like a turnaround after 2015 - which was considered the worst year for IPOs since 2009.

However things slowed down considerably in Q3, according to data from Renaissance Capital. That slowdown is likely thanks to two big name, under-performing tech stocks: Blue Apron and Snap.

The IPO market was down overall in Q3, with the number of companies choosing to go public dropping from 52 to 29, or a 44 percent slowdown. The amount raised went from $10.6 billion to $4.2 billion, a drop of 60 percent. That is the smallest amount raised in any quarter since the first quarter of 2016.

It should be noted, though, that there have already been more IPOs in 2017 than in all of 2016, so no matter what 2017 will see an improved market. 

Falling tech stocks

For tech stocks, the tumble was even worse, with just three IPOs in the entire quarter, down from 12 in Q2, a 75 percent drop. The amount raised went from $1.5 billion to $300 million, a drop of 80 percent. Meanwhile, health care saw the number of IPOs stay the same, while seeing its amount raised grow from $1 billion to $1.2 billion. 

So why were tech stocks hit so hard? Renaissance Capital points the finger at Snap and Blue Apron, both highly anticipated stocks that have stalled. 

Snap debuted in March, priced at $17 a share. The company was hit hard in its subsequent two earnings reports: in the first it saw losses of over $2 billion, with soft user growth, sending its stock down 24 percent; in the second it came up short on revenue and earnings, with $181.7 million on a loss of 16 cents EPS, versus the expected $186.2 million on a loss of 14 cents EPS. That sent the stock down 16.7 percent.

Snap is currently trading a $14.89 a share, down over 12 percent from its IPO price. 

Blue Apron went public in June at $10 a share. In Q2 it beat on revenue, with $238.1 million, versus the expected $235.8 million, but missed badly on EPS, with a loss of 47 cents per share versus an expected a loss of 30 cents per share. That drove the stock down 15 percent.

The company is currently trading at $5.43, down 46 percent from its IPO price. 

For the sake of comparison, Facebook's stock has risen 25 percent since March, from $136.47 a share to $169.47, while Amazon has gone up 12 percent, from $853.05 to $959.19 a share,and Alphabet has seen its stock price go up 12 percent from $858 to $967.47 a share.

Nasdaq's current price is 6,507.65, up 10 percent from 5,904.03 at the beginning of March.

What will Q4 look like?

With those two companies struggling, you might assume that the tech IPO market would stay dormant in Q4 as well, but Renaissance Capital sees two hopeful signs for the future.

First is the IPO of Roku in September, which was the third best performing IPO of the quarter, seeing its stock rise 67.9 percent on its first day and an 89.6 percent return from its IPO.

It's now trading at $23.56, up 68 percent from its IPO price of $14 per share.

The other sign are in the form of technology companies that have already filed to go public. There are already 11 that have done so including Sea, Switch, MongoDB and CarGurus. Renassiance Capital seems to be especially interested in the MongoDB IPO, in which the company is looking to raise $100 million.

Switch is planning to raise $469, which would make it the largest tech IPO since Snap, while Sea plans to raise $1 billion. 

"Poor trading from 1H17 IPOs Blue Apron (-46% from IPO) and Snap (-14%) may have soured investors on new highly-valued tech stocks, but Roku's well-received offering and MongoDB's initial filing indicate that VC activity could soon pick up," it says in the report. 

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