The Nasdaq index has fallen by 28% this year. The S&P 500 index is down 20%, while the Dow Jones is down nearly 13%. Leading the decline is of course the Hang Seng in Hong Kong, which crashed by 35% mainly because of Chinese technology stocks The German DAX index lost 19%, the French CAC 14%, and the British FTSE and Japanese Nikkei fell by only 6%.
These sharp declines are nothing compared to the drop in IPO prices. The dream IPO shares of the past few years have fallen much further. Thus, delivery companies like Uber and DoorDash are just two of many companies that are losing and their shares are falling. If in the previous years, during the bubble, investors were in euphoria, when every broom shot and hit, then now the situation is the opposite – during falls in the markets, investors remember that basically the goal of companies is to make a profit and they are looking for it now.
The Hesel Renaissance Fund (NYSE: IPO) is a suitable index for the IPO market because it mainly holds IPOs that have taken place in the last three years. The index has erased 50% of its value since the beginning of the year to a price of about $29, much worse than the 28% decline in the Nasdaq index.
Over the past five years, the fund has provided an annual return of 1.5% to each investor in the fund, well below the benchmarks. Snoopy, by comparison, has yielded an annual return of approximately 9.2% to investors over the past five years.
A 95% drop in the volume of funds raised by the companies this year – a negative record of a decade
The amount of money brought in by the companies in IPOs in the last year is barely 6.7 billion dollars, a drop of 95% compared to 142 billion dollars last year. Even after you add the NIS 860 million in Mobileye, which returns to trading today, following its IPO by Intel, the volume of fundraising in IPOs in the past year is still expected to be the lowest in the last decade.
The volume of issuances last year skyrocketed due to the amount of cheap money that the various governments around the world gave in the form of grants during the Corona epidemic in order to stabilize the market and prevent a recession around the world – the problem is that they did not manage to prevent a crisis but only postponed it. The bubble did not burst last year and it is bursting loudly this year, when inflation is also rampant (you printed money without realizing it, what did you think would happen? That there would be no inflation?)
If we really want to defend these new issues, we can say that those companies did not know that they were not such a great bargain, or were deep inside their own bubble and did not realize that this was not the case. If we praise them a little less, we can also say that a small part of them probably knew that the companies were not worth that much but consciously chose to mislead their investors (and on the way to slip billions of dollars into the pockets of the founders and the company) when they gave themselves excessive valuations, both in relation to their true value , both in relation to sales, both in relation to growth – and of course in relation to profits, which for some still do not arrive.
Most of the new issues have a negative return since the issue
According to Renaissance, which reviewed the top five IPOs in each of the last five years, 15 out of 25 stocks, i.e. -60%, are now trading at a loss on the IPO. As mentioned, the big losers are Uber and DoorDash, but also the social network company Snap, and the electric car manufacturer Rivian. On the other hand, Airbnb, the cloud company Snowflake and the photo sharing company Pinterest can be mentioned with the companies that went up.
The situation is bad in the spec market, where the companies went public while bypassing the traditional offering that requires a prospectus to the Securities and Exchange Commission (SEC) and the underwriters. Out of the 18 companies tested, only 2 companies are above the IPO price. Only the large ones were tested, but rather the small and medium ones, and among them there are a lot of Israeli women who were simply slaughtered – a 90% decrease is also possible and even less – see Autonomo, Hipo, Kaltura and more.
According to the research company’s examination – of all initial public offerings (IPOs) since 2018, only 23%, a little less than a quarter, are currently trading above the issue price. the rest? trading deep in the red territory. It should also be said, these are conservative results because they are based on the initial IPO price, and not on the closing price on the first trading day, although according to most of these shares jumped on the first day, only you as small investors could not really enter before the first trading day (the issuances closed in advance with the institutions) and enjoy these increases.
Who might be interesting?
But in all this pile of bad stocks are there some that are interesting now? The answer will surprise you, but the analysts claim that precisely in these prices there are interesting investments.
It is possible that stocks like Robinhood, Allbirds, Rivian, and Pushmark are interesting now. They are now trading at a higher price than they were traded at the beginning of the year. Pushmark has climbed since the fall to nearly 70%, this after agreeing to be sold to a South Korean company.
And what makes them interesting? The fact that some of them trade close to the cash they have in the cash register. Allbirds, which trades at a price of $3.46 per share, is of course losing money, but shows a net balance of $1 per share, and a value of about $2.5 per share, mainly related to the company’s shoe sales. Its market value is about 500 million dollars – relatively cheap compared to other companies in the market, which increases its potential to be acquired by one of the larger companies. Who knows, maybe Nike or New Balance, if they choose to focus on sustainability for the sake of the environment.
As mentioned, Robinhood also enters this list, along with Doordash and Lyft. Robinhood is trading at $11 per share and has cash of $7 per share. DoorDash trades for $47 and has $10 per share in the treasury, and Lyft trades at a price of $15 and has $3 in treasury per share.