The Exchange just yesterday discussed a downward revision in the impending Compass IPO and the disappointing Deliveroo flotation as signals that market demand for high-growth, unprofitable tech shares could be slipping. Recent news underscores the possibly chilling conditions. This morning, Kaltura, a technology company that provides video streaming software and services, delayed its IPO. JioForMe reports that the postponement comes after Kaltura’s “valuation demand was lower than expected.”
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TechCrunch noted yesterday that Kaltura had not released a second, higher IPO price range. The fact stood out given how hot the public markets had proven in recent months for new tech offerings. Kaltura’s S-1 filing detailed accelerating revenue growth, which at the time we thought would be more than enough to fetch the company an attractive initial public valuation.
It appears that Kaltura was also surprised that it was not trending toward a higher IPO price.
In another sign of how quickly the temperature for new tech flotations may have chilled, digital comms firm Intermedia Cloud Communications also delayed its IPO today. In a release, CEO Michael Gold said the decision is due “to challenging current conditions in the market for initial public offerings, especially for technology companies.”
Challenging current conditions? For IPOs? For tech IPOs? That’s new.
Uh-oh
Axios reporter Dan Primack noted this morning that SPAC formation appears to be slowing. Mix that into the delays and yesterday’s anemic-to-awful IPO news, and the market could be seeing a somewhat rapid retrenchment toward more historical valuations and demand levels for unprofitable equities.
Thinking out loud: We should expect SPAC formation and deal volume to fall the fastest of all the signals we’re tracking, including IPO pricing, the pace of S-1 filings and first-day trading performance. Why? Because it’s the most exotic of the various data points we’ve observed on the way up during the tech boom. Therefore, it should also be the thing most vulnerable to rising financial gravity.
But there’s a lot more going on across the private-public divide than SPACs. We have Coinbase’s impending direct listing. Robinhood has filed (privately), waiting to go public itself. And there are a number of other software unicorns that want to get public this year while equities prices are at all-time highs.
We could be in for a quarter’s pause. I forget which investor told me this, but I was informed some time ago that the Q1 and Q3-Q4 windows of the year would be active for IPOs, and that Q2 2021 would be slow. Why? Because companies have to get new numbers in order, and after closing the books on their last year, that’s a pain. Something along those lines. But if we do see a slowdown in second-quarter debuts, we should not fall out of our chairs.
That said, I doubt many folks expected the IPO climate to get so chilly without warning.
Yeah, but
While all this is going on, the value of public software companies is having another strong day. With the Bessemer Cloud Index up nearly 4% as I write to you and the Nasdaq up 1.74%, it’s hard to say that there is no love left for tech equities.
And recent IPO Coursera did well on its first day of trading, only to see its shares rise more today. That’s hardly a sign that there is no demand for growth-oriented tech shares. Instead, we might be seeing a flight to quality inside of tech stocks, a doubling-down on the strongest firms and a move away from the riskiest. The new IPOs, the SPAC-led debuts and the like. For the already-public, this is good news; it gives them extra liquid funds to use as a weapon and limits the ability of some rivals to raise public cash.
For younger tech cos with itchy investors and a history of losses, it’s pretty crap news.
Let’s see what happens over the next week or so.