The Friday On My Mind… series features end of week thoughts on a variety of issues impacting investor relations, the markets and the investment community, from Chris Taylor, EVP, Global Research, Thought Leadership & Partnerships
The IPO market is back!
Ok, not so fast. Whether or not a successful Twilio IPO would have re-started a relatively dormant IPO market was up for debate even if the “Remain” camp had won Thursday’s vote on the UK’s membership in the EU. With the “Leave” camp winning the day (we’ll see if they win the long term) talk of a resurgent IPO market will quiet for a bit, as volatility across the globe will likely return. However, a contrarian view on the US IPO market could say that investors need to put their cash to work in equities, and IPOs, particularly tech companies that get a higher percentage of revenue from the US, could be a superior place to invest. Time will tell.
Back to Twilio, which priced its IPO on Wednesday night and had an enormous first day of trading on the NYSE. How big? I consulted with Ipreo’s Capital Markets Services Team to put Twilio’s first-day performance into context against other IPOs over the past couple of years.
- Twilio’s underwriters priced the IPO at $15, which was
above the initial price range of $12-$14. IPOs pricing above the indicated price range is not unusual, but it has been far more common for IPOs to price below their indicated price ranges. Less than 1 in 5 IPOs priced above range in 2014 and about 1 in 4 IPOs priced above range in 2015. Twilio represents the first IPO in 2016 (of 31) to price above its range. Conversely, in 2014 and 2015 IPOs that priced below the initial filing range were almost as common as IPOs that priced within the range (see range table to right).
- Twilio surged in its first day of trading, closing on the NYSE at $28.79, 92% above its $15 IPO price. Twilio’s first-day
pop is in the top-15 for all IPOs since 2014 and far outpaces the first-day pops of Atlassian (+32%) and Penumbra (+38%), the last two IPOs (both in 2015) that priced above the initial price ranges (see pricing table to left).
- Twilio’s trading volume represented close to 200% of the number of shares offered! Assuming the over-allotment option was exercised by its underwriters, Twilio offered 11.5 million shares to the public. Trading volume at the 4:00pm NYSE close totaled 21.2 million shares. Heavy trading volume is the norm on the first day of trading for an IPO due to a variety of reasons: a) investors that received a small allocation of shares and don’t have the conviction of adding more in the open market, quickly flipped their shares; b) short-term traders took advantage of Twilio’s liquidity and performance to capture quick gains; and c) other investors, typically those that received the biggest allocations, wanted more shares and entered the open market to add to their positions. These investors tend to be longer-term shareholders that
have fully vetted the company’s strategy and outlook. The top of Twilio’s shareholder list is likely more concentrated due to this trading activity than it was when the shares were allocated. To put Twilio’s first-day volume into context, we took a look at the trading volume of the last two IPOs that priced above range, the aforementioned Atlassian and Penumbra (see volume table to right).
Twilio’s success as a company and a stock will be played out in the coming months and years. The company deserves heaps of credit for coming to a fragile market on the eve of the Brexit vote and crushing its IPO. The Brexit vote, however, may have crushed the hopes for a revived IPO market.