The IPO Buzz: Shutdown Facts vs. Fiction

The word around Wall Street is there will be no IPOs in January. But don’t believe everything you read. Look at the facts.

The finger of blame points at the record shutdown of the U.S. government. (Monday will mark Day 24 of the government shutdown, making it the longest in U.S. history.) The shutdown put the U.S. Securities and Exchange Commission on a part-time work schedule. The word is that there won’t be much traffic coming from the SEC’s filing window. Normally, no filing traffic means no IPOs.

This year, the facts don’t support the theory.

Reason to Cheer

In the first two weeks of 2019, 10 new IPO filings popped through the SEC’s window.

Let’s turn to the SEC filing records of the past 10 years. That would run from 2010 through 2019. The records showed that a total of 91 new IPO filings posted during the first two weeks of January over that 10-year period. That’s an average of 9.1 new IPO filings per year for January’s first two weeks during 2010 through 2019.

Worth repeating: In the first two weeks of 2019, 10 companies filed to go public. That traffic exceeds the average of 9.1 new IPO filings for the first two weeks of the year – i.e., the first two weeks of January – over the past decade.

A Stealth Debut

For those singing the “Blame It on the Shutdown” blues, the theory includes the premise that there will be no IPOs for January 2019. Don’t look now, but a small-cap deal started trading on Wednesday, Jan. 9, 2019.

MMTEC (MTC), headquartered in Beijing, provides Internet-based technology services and solutions to Chinese-speaking hedge funds, mutual funds, registered investment advisors, proprietary trading firms and brokerage firms engaged in securities transactions and settlements globally. The company’s IPO of 1.8 million shares was priced at $4 a share on Wednesday, Dec. 26, 2018. A week later, on Tuesday, Jan. 8, 2019, the IPO opened at $4.50 and closed its first day of trading on NASDAQ at $5.94 – marking a gain of 48.5 percent in its debut.

On Friday, Jan. 11, 2019, MMTEC’s stock closed at $8.90 – UP 122.5 percent from its IPO price. (Fans of Chinese numerology know that the number 8 is the luckiest number in China because its name sounds like “fa,” which means wealth, fortune and prosper in Chinese, according to TutorMing, an online service for learning Mandarin. So it’s interesting to note that Friday’s close for MMTEC’s stock at $8.90 includes two of China’s most auspicious numbers – 8 and 9.)

Behind the Buzz

There is more buzz to today’s IPO outlook. There is talk that Wall Street syndicate desks are enthusiastic about the coming IPO Calendar, once the government shutdown ends. There is evidence to support that.

Note the following: CBInsights, a website that tracks unicorn companies, now says the Global Unicorn Club consists of 311 unicorn companies with a total cumulative valuation of $1,087 billion, up from a previous 306 unicorn companies with a total cumulative valuation of $1,031 billion. (A unicorn is a private company with a valuation of $1 billion or more.)

Headlines in the financial press and tech-savvy news outlets have proclaimed that investors are eagerly awaiting the IPOs of 2019. Certain unicorns, ranging from the ride-share rivals Uber and Lyft to other Silicon Valley darlings such as Pinterest, Slack, AirBnB, Instacart, Postmates and Palantir, are expected to go public this year. Some believe that 2019 could be a blockbuster year for IPOs.

Check out The Wall Street Journal on Dec. 31, 2018:

IPO-Hungry Investors Look to Have Their Moment in 2019

Time to Heal

There have been other elements, of course, that have blurred the IPO picture. The first was U.S. stock market conditions. Consider: The NASDAQ Composite Index lost 9.5 percent in December 2018. It closed Monday, Dec. 31, 2018, at 6,635.28, DOWN from 7,330.54 on Nov. 30. It takes a little time for the wounds to heal from a recent sell-off.

Finally, there is the traditional layoff period between the year-end close in mid-December and the IPO market’s rebirth in mid-January.

To be clear, the federal government’s shutdown did not take a giant bite out of the IPO pie. Consider the evidence: 1. The IPO pipeline is building. 2. Private capitalists have been pouring more money into unicorns. 3. The IPO market is swaying to its traditional rhythm – a pause in mid-December, when the seasonal holiday break begins – and a slight sway as it reopens in January.

For the week of Jan. 14th, the IPO Calendar is as clean as the morning snow in Aspen. But anything can happen when the SEC’s filing window opens again for business on Monday morning.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinion.