Zendesk (NYSE:ZEN), which provides a SaaS platform that consolidates customer interactions, popped 49% Thursday after pricing at the midpoint. Yet investors who view Zendesk as a turning point for tech IPOs should recall the pattern of strong first-day performance followed by poor aftermarket trading among its peers. In addition, the stock received a boost as the company disclosed that insiders would purchase one fourth of the deal on the day of its IPO.
However, Zendesk's further 14% gain on Friday (up 69% from its IPO) signals that tech valuations may have stabilized. Until now, enterprise software IPOs in the pipeline have been sitting on the sidelines, as companies like Box (Pending:BOX), Imprivata (NYSE:IMPR) and TubeMogul (NASDAQ:TUBE) delay their IPOs by over double the required 21 day period from the initial filing.
The week's other U.S.-based tech IPO was TrueCar (NASDAQ:TRUE), whose website guarantees consumers one low price on a new car before they head to the dealer. After slashing its IPO price 31% from the midpoint, the company gained 12% on Friday. TrueCar's stock still trades below the original range, an indication that IPO investors are now in the driver's seat when it comes to pricing.
Jumei International Holding (NYSE:JMEI) is the latest of seven Chinese IPOs in 2014, and the first to price above its original range. After selling 17% more shares than it planned, the company managed to raise $245 million in its IPO, in addition to a $150 equity investment from General Atlantic in a concurrent private placement. Jumei's initial public offering is the first of three large Chinese e-commerce IPOs, which will continue with JD.com (JD, pricing next week) and culminate with Alibaba (ALIBA.RC, IPO likely within the next few months).
Two small regional banks also went public this week. The banking industry's five IPOs this year have produced unremarkable returns, averaging -2% from the IPO price. Like Zendesk, Bankwell Financial added insider buying before its IPO, yet it priced below the range and traded flat on Thursday and Friday.
|IPO pricings (week of May 12, 2014)|
|Company (Ticker)||Business||Deal Size ($mm)||IPO Price vs. Midpoint||Return as of 5/16|
|Zendesk||Customer service SaaS platform||$100||0%||69%|
|TrueCar||Website that locks in low new car prices||$70||-31%||12%|
|Jumei International Holding||Online beauty products retailer in China||$245||7%||10%|
|Bankwell Financial Group||Commercial bank in Connecticut||$49||-20%||0%|
|ServisFirst Bancshares||Commercial bank in the Southeast U.S.||$57||-1%||-9%|
IPO market snapshot
So far this year, 109 IPOs have raised $20.5 billion and produced an average first day return of 15%. The Renaissance IPO ETF (symbol: IPO), a cap-weighted basket of newly public companies and indicator of post-IPO performance, has fallen 5.4% compared with +1.5% for the S&P 500. Over the last 30 days, the IPO ETF has fallen 3% compared with +1% for the S&P 500, as the IPO market continued its valuation correction into May. The active IPO pipeline now includes 117 companies looking to raise a total of $48.5 billion, including Alibaba's expected $20 billion IPO.
Disclosure: No positions