As we look back on the
IPO market in 2018, the story of "Dr. Jekyll and Mr. Hyde" comes to
mind. Over the first three quarters of the year, we mostly saw the friendly Dr.
Jekyll, with a very occasional glimpse of the more insidious Mr. Hyde. Volume
was very healthy, putting the IPO market on pace to perhaps threaten 2014's
impressive mark of 275 pricings. Investor demand was also quite strong as most
deals priced at least in-line with expectations, with many increasing the size
of their IPOs and pricing above the projected ranges. Of course, during this
time-frame, the broader stock market was also very conducive and supportive for
IPOs as the market hit new high after new high.
The IPO market seemed to be firing on all cylinders until some issues began to surface in late summer. From late July to mid-August, there were four IPOs that were forced to slash their deal sizes: Cango (CANG), Berry Petroleum (BRY), Aurora Mobile (JG), and Mesa Air Group (MESA).
While that shaky
performance was in stark contrast to what we saw in the prior 7-8 months, it
still didn't ring too many alarm bells. The weak demand for those deals was
mostly chalked up to it being the slower, "dog days of summer."
However, the dog days stretched beyond the summer as the soft pricings would be a harbinger for things to come and Mr. Hyde prepared to take the stage.
Despite concerns about a slowing Chinese economy, and the struggling Shanghai Composite, some of the first IPOs out of the chute following the Labor Day break were Chinese deals. These included NIO (NIO), dubbed as "China's Tesla", Qutoutiao (QTT), X Financial (XYF), and 111, Inc. (YI). Given the sour sentiment surrounding China's economy and stock market, and concerns about further trade escalations, it did not come as a shock that demand for each of these IPOs was tepid. With those four weaker offerings coming on the heels of CANG, BRY, JG, and MESA, we now had the markings of a potentially severe reversal in the IPO market.
Fast forward to October 25, and we received yet another indication that the IPO market was indeed mired in a bear market. Specifically, YETI (YETI), the maker of popular outdoors products, launched its IPO just ahead of its seasonally strongest months. In a healthy market, an IPO like YETI, with strong brand recognition, would almost certainly generate solid demand. However, that was not the case, as the company slashed its IPO to 16 mln shares from 20 mln, and priced its down-sized deal below expectations at $18 versus the $19-$21 projected range.
The IPO market had one more big chance to end the year on a positive note as Tencent Music (TME) lined up its IPO for December 12. The spin-off from Chinese internet giant Tencent, and, the largest online music platform in China, was coming off 150% revenue growth last year and its margins have been steadily expanding. The company is also very profitable and generates considerable cash flow. So, on the surface, TME looked like another IPO that should garner plenty of interest. Once again, though, Mr. Hyde had other ideas as the harsh IPO market kept a lid on it. Specifically, TME's 82 mln ADS IPO priced at $13, the low end of the $13-$15 expected price range, and the quickly sank to the $12 level over its first few days of trading.
And, that is how the IPO market closed out 2018 -- not on a very happy note, to say the least.
That said, when you look at the final stats for the year, they still look pretty good. For instance, there were 190 IPOs in 2018, up about 19% from 2017. From a proceeds perspective, companies generated $47 bln in capital, up 32%, led by the healthcare sector. There were also plenty of larger deals that surpassed the $1 bln mark -- including the aforementioned TME -- along with Elanco Animal Health (ELAN) and ADT (ADT), among others.
As we head into the new year, there is a lot of uncertainty regarding the IPO market, given how 2018 ended with a whimper. If the broader market becomes relatively stable, it could be a very interesting and exciting year for IPOs, though. That's because there are a number of high-profile names still on the sidelines that could finally go forward with their IPOs. On that note, reports surfaced a few weeks ago that Pinterest could be ready to go public as soon as April. And, if it does proceed with an offering, it could achieve a valuation north of the $12 bln level.
Also, 2019 could be the year that ride-sharing companies Uber and Lyft finally go public. Rumors of an Uber IPO have been circulating for years , but, the company has confidentially filed its S-1 with the SEC, so, an IPO is almost certainly on the near-term horizon. The company has held-off on an IPO as it has tried to get its financials in better order, and, as it has faced several public relations issues and executive turnover including the resignation of its CEO, Travis Kalanick, in June 2017. Its growth has been solid, however, estimated to be up nearly 40% last quarter. With an estimated valuation of around $120 bln, Uber would provide a massive and much needed lift to the IPO market.