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posted: 4/12/2014 7:15 AM

Technology IPOs face skittishness as stock market momentum slips

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  • A trader works next to a GrubHub Inc. paper bag on the floor of the New York Stock Exchange in New York.

      A trader works next to a GrubHub Inc. paper bag on the floor of the New York Stock Exchange in New York.
    bloomberg

 
Bloomberg

Goodbye momentum.

Technology companies had a relatively easy time marketing initial public offerings while stock markets were steadily rising: the Nasdaq 100 Index rose 33 percent to a 14-year high in the year through early March. For Sabre Corp., Weibo Corp., Leju Holdings Ltd. and Paycom Software Inc., which are pitching to raise $1.63 billion over the next week, the timing may not be ideal.

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Since that early March peak, the technology benchmark has dropped more than 3 percent -- and newly public shares have been hit particularly hard. Almost all the Internet and software IPOs that were conducted since 2012 fell in the 10 days through April 7, and the median drop was about 11 percent, data compiled by Deutsche Bank AG show. The selling reflects concern that the momentum is unwinding, making investors less likely to bet on companies with meager revenue and earnings, according to fund manager Jeff Sica.

"Investors are beginning to look more toward fundamentals in the IPO market, so these growth companies will either have to delay or push out as soon as possible," said Sica, whose Sica Wealth Management LLC oversees more than $1 billion and invests in new issues.

Yesterday's rebound notwithstanding, the sell-off has included some big names: Facebook Inc., Amazon.com Inc. and Yahoo! Inc. are among 77 companies that have plummeted 15 percent from their 52-week highs, data compiled yesterday by Bloomberg show.

Candy Crushed

Because investors use already listed peers to determine what they'll be willing to pay for a new issue, a choppy market can mean that newcomers have to accept a lower price. Outside of the technology sector, Blackstone Group LP had to accept a lower-than-expected $17 a share for its La Quinta Holdings Inc. hotel after the Bloomberg U.S. Lodging Index dropped more than 7 percent while it was marketing the deal.

The performance of recent offerings can also set the tone for upcoming deals. On the technology front, the results have been mixed.

King Digital Entertainment Plc, the maker of Candy Crush, plunged 16 percent in its debut last month even after pricing its shares at a discount to gaming peers. Five9 Inc., which develops call-center software products, set a price below its marketed range last week.

GrubHub, Opower

On the other hand GrubHub Inc., the online-food delivery service that runs websites such as Seamlessweb.com and Menupages.com, surged in its first day of trading last week after offering more shares above an already-boosted price range. Opower Inc., a cloud-based software provider for the utility industry, priced at the top end of the range in its debut last week and traded higher.

In addition to the four looking to raise funds over the next week, 26 other technology companies have filed this year to raise $3.7 billion through initial share sales, from Chinese e- commerce business JD.com Inc. to online-storage provider Box Inc., according to data compiled by Bloomberg.

Letting air out of stock valuations could also be helpful for IPOs to come.

"The recent sell-off in these tech stocks may have relieved some of the expectations and performance tension going into earnings season," Ted Tobiason, head of technology equity capital markets at Deutsche Bank AG in San Francisco, said in a note. "Valuations have moderated and the quality filter has tightened but it is still a healthy market for issuers."

To contact the reporter on this story: Leslie Picker in New York at lpicker2bloomberg.net To contact the editors responsible for this story: Mohammed Hadi at mhadi1bloomberg.net James Callan

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