NEW YORK, Jan 2, 2019 (BSS/AFP) – Investors have been priming themselves
for a potentially huge influx of companies selling stock to the public for
the first time, led by ridesharing game changers Uber and Lyft, but the
outlook is more uncertain with the vicious return of volatility to the
market.
For companies trying to raise capital, volatility is the enemy.
“We enter 2019 on uncertain footing,” said Renaissance Capital, a research
firm focused on initial public offerings (IPO).
The market is coming off an outstanding 2018 for stock offers, with 231
companies going public and raising $61 billion, the best year since 2014 when
Alibaba entered Wall Street, according to Dealogic.
But financial markets have been on a roller-coaster of late, generating
questions about whether conditions are right for more IPOs.
Angst over higher Federal Reserve interest rates and projections for
slower global growth have been the key factors behind the swoon in December
by a market already unnerved by escalating trade tensions.
IPO activity through the first 10 months of 2018 topped 2017 levels by 42
percent, but tumbled 66 percent in the final two months of the year as stock
markets gyrated.
Several offerings that planned for the end of the year were pushed into
2019, according to a person with a major exchange.
Volatility is “definitely a priority in terms of IPO conversations,” said
this exchange source.
– Too much volatility? –
Waiting in the wings and expected to launch in 2019 are several prominent
“unicorns” — a private company worth more than $1 billion.
This group includes ridesharing service Lyft, which filed confidential
papers to go public, and its archrival Uber, according to US business press.
Others that are expected to go public include the lodging service Airbnb,
messaging service Slack, content website Pinterest and data analytics company
Palantir.
Market specialists are confident these firms should be better equipped to
navigate the more challenging environment given their size.
“Volatility is one of the key factors when companies plan for their IPOs,”
said Jeff Thomas, who supervises introductions of IPOs at Nasdaq.
Companies have even been known to accelerate a plan to go public if they
anticipate even greater volatility down the road.
Still, the market turmoil could affect how much money companies raise.
“If current market conditions presage a US economic slowdown in 2019,
investors may want to haircut valuations to incorporate slower earnings
growth,” said Nicholas Colas, co-founder of DataTrek Research, who noted that
Uber, Lyft and Airbnb are all dependent on consumer spending, while Slack and
Palantir rely on corporate spending.
“None have been tested by a US recession in their current forms,” Colas
said.
“Bankers and lawyers are definitely aware” of the spike in volatility,
said Douglas Ellenoff, a securities attorney. But stock market jitters won’t
derail offerings as long as it is “moderate.”