US tech looks to test a challenging IPO market

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.

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.

The article US tech looks to test a challenging IPO market originally appeared on IPO investment manager Renaissance Capital's web site renaissancecapital.com.

Investment Disclosure: The information and opinions expressed herein were prepared by Renaissance Capital's research analysts and do not constitute an offer to buy or sell any security. Renaissance Capital's Renaissance IPO ETF (symbol: IPO), Renaissance International ETF (symbol: IPOS), or separately managed institutional accounts may have investments in securities of companies mentioned.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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