Are IPO Markets Right Now as good as they were in the dot-com Era?
Indus Valley Partners general manager Sandy Miller in an interview with the press expressed his sentiments that the year 2017 could be the prime environment for companies from all sectors of the US economy to go public. However, the post-release performance of largely-publicized offerings such as those of Snap Inc. and Canada Goose Holdings might give different results. Since March 27th, Snap’s stock has been on a downward trend.
Despite these sentiments, Mr. Miller explained that extreme increases in a stock’s value soon after issuances were not a good sign. Doubling or tripling in value, for example, could mean that the stock was underpriced meaning that the underwriters did not prepare the company’s release well enough. Additionally, the company could have managed to raise higher revenue from its offering, and this would have led to better prospects for the company’s expansion and overall profitability. As such, the performances of Snap and Canada Goose as well as other new entries into the market is somewhat expected.
A majority of offerings in the recent past are from highly successful start-ups. These companies show exponential growth under short periods and generate higher and higher revenues across fiscal quarters. In most cases, the firms are usually still in debt or are losing money. This, combined with the volatility of the stock markets, could lead to even the most successful companies performing somewhat dismally following an IPO. However, the fact that most firms that joined trading floors this year are still trading well above their issuance prices and are showing signs of growth means that their releases spurred them on to better overall performance.
Further, companies in areas such as the tech sector have observed a higher overall operating revenue. A majority of firms going public under the technology field these days are generating revenues above $100 million. The general manager also reported that the robustness in the Initial Public Offering markets this year would flow into next year’s markets, leading to brighter prospects for 2018’s releases as well. Further, the improvement on offerings will lead to better markets in the M&A.
This year, IPO markets in Canada and the United States have had better reception from investors. The markets are more stable after somewhat settling down after the shocking Brexit decision and the unlikely US Presidential election result from last year. In the wake of these and other occurrences over 2016, the markets had been deemed unfavorable by many investors.
2017, however, has had larger releases that are likely to generate higher revenue and profitability in the coming years. An upsurge of filings in the data analytics sector under the technology field has been as a result of investors accepting higher valuations from this area of technology. Additionally, lower taxes and the suggested lowering of interest rates over the course of this year has resulted in more firms being confident in taking on debt for the expansion of their companies. As a result, these enterprises record higher revenues that the investment world looks at positively.
Whether companies issued over this period will reach the levels of Amazon and Google is yet to be known or estimated. However, one thing is clear – things are better than they have been for the IPO market in quite a while.