US tech IPOs virtually disappeared in the 4Q19 following disappointments from multiple fast-growing, unprofitable unicorns. Healthcare (55% of 4Q IPOs) and Chinese issuers (24%) have monopolized IPO deal flow since October, but tech is returning to market alongside a comeback in the IPO Index. Back-office automation unicorn Bill.com (BILL) and social media management software Sprout Social (SPT) are expected to IPO next week, joined by Chinese software platform OneConnect Financial Technology (OCFT).
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Two small US tech companies have IPO’d in the 4Q, but Bill.com is the first tech IPO of the quarter with a billion-dollar-plus valuation following strong activity from big tech in the 2Q and 3Q. Sprout Social isn’t far behind with a nearly $900 million proposed valuation.
| US Tech Issuers with $1B+ Valuations at IPO | |
|---|---|
| 1Q19 | 1 |
| 2Q19 | 8 |
| 3Q19 | 6 |
| 4Q19 | 0 |
So far in the 4Q19, 76% of IPOs have priced below the midpoint, compared to 30% in the first nine months of 2019. IPOs in the 4Q19 have had lower first day returns than those in the first three quarters of the year, averaging 4% compared to 21%. However, initially cautious investors have been more optimistic in the aftermarket: 4Q IPOs have averaged a return of 8% after the first day, up from -4% in the first three quarters of the year.
| More Pricing Pressure in the 4Q19 IPO Market | ||
|---|---|---|
| In the 9mo19 | In the 4Q19 | |
| # of IPOs | 119 | 33 |
| Avg Offer Price vs. Midpoint | 2% | -10% |
| % of Pricings Below Midpoint | 30% | 76% |
| Avg First Day Return | 21% | 4% |
| Avg Aftermarket Return | -4% | 8% |
| Avg Return from IPO | 16% | 14% |
| % Trading Above Issue | 54% | 64% |
