Mulesoft, a software “unicorn”, gained 46 per cent in its trading debut in New York on Friday, the latest in a number of hot listings that are reviving the US market for initial public offerings.
Mulesoft rose to $24.75 after pricing at $17, giving the IPO the best first-day “pop” this year, according to Dealogic. The performance follows recent first-day gains from Canada Goose, the maker of trendy overcoats, and Snap, the owner of the messaging app Snapchat, of 26 per cent and 44 per cent, respectively.
The string of well-received deals follows what has been period of historically low activity for US IPOs — last year marked the slowest since the aftermath of the financial crisis in 2009. Still, the enthusiasm demonstrates both the opportunity and risk associated with fresh floats.
“Certainly, for the ordinary investor, companies are particularly volatile after the IPO,” said Matthew Kennedy, an analyst at Renaissance Capital, which runs IPO focused exchange traded funds, who added that investors may have to endure some “very wild swings”.
Snap, for example, has come under pressure this week after its blockbuster debut in early March. It rose as high as $29.44 in its second day of trading, but has since fizzled to trade around $19. Investors who bought at the IPO price of $17 still are in the black, but not those who were swept up in the excitement of the early trading gains and bought right after the IPO.
Even at current levels the company has achieved a valuation of more than $20bn despite recording a net loss of $515m last year, greater than its revenue of $405m.
Some investors were already expressing scepticism about Canada Goose’s early flight in spite of its strong brand, high growth and profitability.
Sean Stiefel, a portfolio manager at Navy Capital, argued that Mulesoft would be less volatile in the near-term than Snap and Canada Goose, which attract more “fast money and retail” investors because they are well-known consumer brands.
Some of the gains for Mulesoft and Snap come because tech listings have been particularly scarce in recent years as companies that have hit on new technologies and services have been able to raise money at attractive levels for them privately. That has led to a herd of so-called unicorns, companies that have achieved valuations of $1bn or more without going public, many of which are likely to list at some point.
While investors buy these companies for the hope of their long-term growth potential, there are other examples besides Snap of companies that have fallen back from their early gains.
Coupa Software and Nutanix, two tech unicorns that priced last year, are trading below the closing pricing at their trading debuts when they rallied, 85 per cent and 131 per cent, respectively.
Still, the buzz around the latest group of hot listings demonstrates investors’ appetite for high-growth companies and is expected to lure more of them to market.
“All three share growth as the core factor and the pricing and after market performance reflect investors’ desire for growth,” Mr Stiefel said.