There were no initial public offerings due to the shortened holiday week. California bank and wealth manager First Foundation (Pending:FFWM) had scheduled its offering for Tuesday but postponed again, having originally planned to go public last week. Despite the slow week, May ended as the fourth straight month with at least 20 IPOs, the longest such streak since 2000.
The tech sector was a roller coaster in May, but momentum shifted up recently as companies like Zendesk (NYSE:ZEN) and the four Chinese tech IPOs posted high returns. The two companies to launch this week were both tech as well - data center optimizer Arista Networks (NYSE:ANET) and mobile enterprise security company MobileIron (NASDAQ:MOBL) recently joined the IPO calendar for June.
The four Chinese tech IPOs that listed in the U.S. this month all gained at least 25%, an encouraging sign for the Alibaba IPO, which is expected in the coming months. One of Alibaba's rivals, Tencent (OTCPK:TCEHY) -backed JD.com (NASDAQ:JD), has traded up 32% after pricing above the range. Online beauty products retailer Jumei (NYSE:JMEI) also priced above its range and has traded up 25%. App developer Cheetah Mobile (CMCM, also backed by Tencent) has returned 27% following a disappointing 1% gain on its first day. The month's strongest performer (it surpassed Zendesk) was the Chinese online packaged tour provider, Tuniu (NASDAQ:TOUR), which priced at the low end of its range, rose 12% on day one, and has since traded up further for a total return of 82%.
Compared to the prior four months, a healthier IPO market emerged in May. On average, the 21 IPOs were priced 10% below their midpoint as investors found themselves in the driver's seat on valuation. The May cohort averaged 8% on the first day - half the average pop seen among the 94 IPOs in January through April. However, May's IPOs continued to trade up, gaining 9% in the aftermarket, compared to the 5% drop for the year's earlier offerings.
|May IPOs by industry|
|Industry||# IPOs||Proceeds ($mm)||IPO Price vs. Midpoint||1st Day Return||Aftermarket Return||Total Return||Industry Top IPO|
|Technology||7||$2,529||-4%||16%||22%||40%||Tuniu (TOUR, +82%)|
|Financial||4||$387||-15%||-1%||3%||2%||Heritage Insurance (HRTG, +13%)|
|Health Care||4||$329||-29%||-4%||1%||-3%||Alder BioPharmaceuticals (ALDR, +7%)|
|Energy||2||$1,241||14%||20%||2%||22%||Parsley Energy (PE, +28%)|
|Consumer||1||$64||-8%||1%||-1%||0%||Papa Murphy's (FRSH)|
|Capital Goods||1||$27||-33%||12%||5%||18%||Superior Drilling (SDPI)|
|May Total/Avg||21||$4,889||-10%||8%||9%||18%||Tuniu (TOUR, +82%)|
|Jan - Apr Total/Avg||94||$18,575||-6%||16%||-5%||7%||Revance Therapeutics (RVNC, +97%)|
Source: IPO Investment advisory firm Renaissance Capital
Three signs point to an IPO market poised to pick up after the fierce market correction of biotech and tech stocks. First, 35 companies submitted initial filings in May. This strong showing includes Alibaba (ALIBA.RC), which could raise $20 billion and become the world's largest IPO ever.
Second, the VIX volatility index reached a 52-week low, signaling that investors could be more willing to take on the risk associated with the IPO asset class. Last, performance has begun to rebound from mid-month lows. 61% of IPOs to date are trading above their issue price, compared with 48% three weeks ago. Total return has climbed up to 9% from just 1%. The Renaissance Capital IPO ETF (symbol: "IPO"), a benchmark for the IPO market, reached its low-point for the year in May, but has since recovered 4%.
Disclosure: No positions