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Q3 IPO Recap: Calling All Unicorns

Today’s installment of our Friday On My Mind… series comes courtesy of Chris Taylor, EVP, Thought Leadership & Partnerships, and Robert Graham, Lead Analyst, Capital Markets Services.

The US IPO market continued to plod along at a relatively slow pace in the past three months. Heightened expectations for a more robust quarter of IPOs came with the warmly-welcomed debut of NYSE-listed Twilio at the end of Q2. The Twilio IPO was followed in early July by another successful NYSE offering of the Asia-based messaging company Line. The IPO market for Q3 was looking up! Although these hopes were dashed, as the pace of IPOs in the third quarter mirrored the relatively slow third quarter of IPOs we saw in 2015, there are positive signs for the IPO market as we move to the end of the year and into 2017.

Let’s take a look at some recent history with a comparison of the YTD IPOs in the US through the third quarters of 2016 and 2015. The number of IPOs in 2016 and the funds raised are about half of what took place during the same time period in 2015. Additionally, first-day IPO performance in 2015 was far stronger than first-day performance of new issues in 2016. The good news is that IPOs in Q3 of 2016 outraised the IPOs in Q3 of 2015 and the performance of the Q3 2016 IPOs basically matched those of Q3 2015. A dash of momentum has returned to the market.

Another sign of the recent strength in the IPO market is the number of issues that have priced above the high end of their initial ranges. There was a considerable spike in deals (8) priced above the range in Q3 when compared to the first and second quarters of 2016, when only one deal priced above its initial range.

Let’s go back further in time and put some context to the 2016 IPO market in the US. The table below reviews the number of IPOs in the US and proceeds raised through the third quarter of every year back to 2001. As you can see, 2016 is almost certainly going to be the quietest year of IPOs since 2008 and 2009, a time when the US and the world were crawling out from under the rubble of the financial crisis.

Of course, IPOs are not exclusive to the US. The IPO markets outside of the US, while by no means on fire, certainly hold up better than the US market in YOY comparisons. The table below presents a regional summary of YTD IPOs in 2016 and 2015. The Asia-Pacific region is dominated by IPOs in Hong Kong and mainland China. Europe, Middle East and Africa IPOs also outpace the US based on total proceeds raised.


On a country basis, Hong Kong is the leading market for IPOs thus far in 2016 with the US trailing in terms of proceeds raised, despite having more than twice the number of IPOs as Hong Kong.

Back to the US
Like the second quarter, Q3 came to an end with a wildly successful IPO in the name of the cloud-computing company Nutanix. As we did with Twilio and Line, we’ve broken down the Nutanix IPO by looking at its first day of trading. While certainly not a guarantee of future success, performance out of the gate is viewed closely to get a read on how welcoming the market is to IPOs. The data below strongly illustrates that the demand for IPOs, particularly tech IPOs, is strong and it is the lack of supply, as companies stay private longer, that is partly responsible for the anemic IPO market.

Nutanix (NASD:NTNX) priced its IPO at $16.00 and offered 14.87 million shares to raise $237.9 million. There have been bigger IPOs (NTNX is the 14th largest IPO to date) but the strong demand is reflected in the offering price, which was not only above the high end of the initial $11.00-$13.00 range, but it was above the high end of the revised range of $13.00-$15.00. Additionally, NTNX originally filed for an offering of 14.0 million shares but eventually sold close to 15.0 million shares.

NTNX was the 10th IPO of 2016 to price above the high end of the initial range. Seven of the 10 IPOs to do so in 2016 are technology companies. At the time of the Line IPO only two IPOs had priced above their initial ranges, so much of the strong market performance came in the third quarter. 

NTNX’s first day of trading blew the doors in as the stock hit a high of $39.40 in intra-day trading and finished its first session at $37.00, a gain of more than 130%! NTNX’s performance ranks as the best of any IPO in 2016 and the fifth best first day of trading for an IPO since 2014.


NTNX’s first-day performance invited a lot of flipping by investors that received an IPO allocation and others that bought the stock early when NTNX opened at $26.50. Trading volume for the first day equated to just over 200% of the shares offered, also ranking NTNX at the top of the list for 2016.

The reality of the calendar and the upcoming US Presidential election will likely prevent the IPO market from substantially outperforming the fourth quarter of 2015—26 deals that raised $7.3 billion. Nevertheless, the IPOs of Twilio, Line and Nutanix have certainly sent a clear message to investment bankers and private companies that the IPO market is not only open but it is eager to do business with the right companies. A rebound in activity may be in store for 2017.

P.S. At press time of this blog post, The Wall Street Journal reported that the California-based messaging company Snap Inc. (a/k/a Snapchat) was considering a 2017 IPO that would value the company at $25 billion. Thank your teens and tweens for that valuation. Let’s hope these plans don’t quickly disappear……

All IPO data is sourced and analyzed by Ipreo’s Capital Markets Analytics Team. Get regular updates on IPOs and other offerings by joining our mailing list.

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