Market Digest – Week Ending 5/27
Stocks moved higher Friday to cap their best week since March. International stocks and Oil were firmly positive as well, while Gold dropped. Equity market gains this week were driven in part by good data on housing starts as well as an upwardly revised Q1 2016 GDP number.
S&P 500: 2,099 (+1.64%)
FTSE All-World ex-US: (+2.50%)
US 10 Year Treasury Yield: 1.85% (0.01%)
Gold: $1,210 (-6.4%)
USD/EUR: $1.111 (-2.9%)
• Monday – Bayer makes $62 Billion bid for Monsanto. Subsequently rejected by Monsanto.
• Tuesday – U.S. New-Home Sales Rise at Fastest Pace in Eight Years
• Tuesday – EU Clears AB InBev’s $108 Billion SABMiller Takeover
• Wednesday – Oil at Seven-Month High as U.S. Stockpiles Drop
• Wednesday – China Fixes Yuan at Weakest Level Against Dollar in More Than Five Years
• Thursday – Oil Prices Slip After Reaching $50 a Barrel
• Friday – NYSE President sees IPO market heating up in the second half of 2016.
Tech companies generally drive the IPO market in the US, but so far 2016 has been the exception. Only a handful of tech firms have gone public so far this year, with none valued north of $1 Billion. This is pretty unusual. In fact, it is the slowest rate of new Tech IPOs since 2009, during the depths of the financial crisis.
The major cause of this drought has been worry over valuations. The market slump in January was painful across the board, but it was especially unpleasant for recent tech IPOs. Box, Square and Fitbit all went public in 2015 to great fanfare and subsequently suffered big hits to their share price, though some have since recovered. In the face of that public market volatility, valuations for private tech companies have remained rich. That disconnect is making some tech CEOs worry that their IPO may be the equivalent of a “down round” of financing, making it harder for them to raise future capital and retain employees. They prefer instead to remain private while waiting for sentiment to shift.
The wait may be over. This week, there is some new optimism in the tech IPO market. Late Thursday, Twilio (maker of voice and messaging apps for business) filed with the SEC to go public as the first tech firm with a private valuation of over $1Bn in 2016. While still unprofitable, the company is seen as a bellwether for tech in general, with rapidly growing revenue and large roster of Silicon Valley customers. Uber, Salesforce, Box and Facebook all use their services. Assuming a successful share pricing, the Twilio IPO may convince more private companies to dip a toe in the public markets this year, and hopefully jumpstart interest in the sector again.
There will a trickle-down effect, either way. Big tech IPOs are the profit engine that powers continued bets on the newest crop of companies emerging in Silicon Valley. A lasting IPO drought could damage or freeze the entire ecosystem, while a few success stories would likely encourage more investment into the sector, with all the innovation that comes with it. So we’re rooting for Twilio.