The IPO Buzz: Slow Winds for Stocks and IPOs

2016’s first half underscored the relationship between the stock market and the IPO calendar. Good stock markets produce active calendars. Poor markets dry it up. This year was the latter.

A total of 41 IPOs (*) were priced during 2016’s first half, according to the U.S. Securities and Exchange Commission filings. That was down from 100 IPOs in 2015’s first half. This year was the slowest first half since 2009, when only 14 IPOs were priced.

The 2009 stock market, as measured by the NASDAQ Composite Index (the barometer of the IPO market), had fallen 51.4 percent from its Jan. 2, 2008, closing high of 2,609.63 to 1,268.64, its closing low on March 9, 2009. That shut the door on IPOs.

This year wasn’t as bad. But let’s look at the real reason for the slowdown – the U.S. stock market.

On Thursday, June 30, 2016, the NASDAQ Composite closed at 4,842.67, DOWN 3.3 percent from 5,007.41 on Dec. 31, 2015. In contrast, the other major U.S. stock market indexes were up for the first six months of 2016. The Dow Jones Industrial Average was UP 2.9 percent and the S&P 500 was UP 2.7 percent for the year to date.

Now let’s take a step back 12 months to July 1, 2015. A total of 114 IPOs were priced between July 1, 2015, and June 30, 2016. The NASDAQ Composite was DOWN 3.4 percent over those 12 months.

For an annualized comparison, the last time fewer than 100 IPOs were priced in a calendar year was 2009, when 63 companies went public.

The bottom line is this: You need the NASDAQ Composite winds at your back for the Good Ship IPO to leave port.

A New Take on Independence

Now for some good news. Things are looking up for IPOs as the United States celebrates the Independence Day holiday on the Fourth of July. For the USA, the holiday marks 240 years since the signing of the Declaration of Independence.

For the IPO market, developments just before the holiday weekend indicated that the calendar is shaking off the Brexit blues.

Silicon Valley lit up with the dance of the unicorns on June 22, 2016, when Twilio (TWLO) priced its IPO of 10 million shares at $15 – ABOVE its range of $12 to $14. The stock closed its opening day at $28.79 – just a bit short of a moonshot. On Friday, July 1, Twilio closed at $34.03 – UP 126.9 percent from its IPO price.

On the Tokyo LINE

Every time you look up, the billion-dollar offering of Japanese messaging-app operator LINE Corporation (LN – proposed) gets its price increased. On July 4, which is not a holiday overseas, there were reports out of Asia that the deal’s price had been increased to a range of 2,900 yen to 3,300 yen per share (about US$28.00 to US$32.00) – UP from a range of 2,700 yen to 3,200 yen per share (US$26.50 to US$31.50).

Adding some sparkle to the IPO sky, seven companies filed to go public last week. Four IPO filings came on Friday alone.

Looking into the week of July 11, the calendar has its headliner – LINE’s billion-dollar IPO. But it is early and anything can happen.

Stay tuned.

(*) The IPO figures exclude bank conversions, “best effort” offerings, closed-end funds, companies trading in the OTC markets moving up to the NASDAQ or NYSE and foreign-traded securities making their debuts in the U.S. capital markets. The latter are public offerings. Investors can buy the underlying shares on foreign exchanges before their U.S. pricing dates.)

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.