Tech IPOs Surge for Another Day, But Why Is Anyone's Guess

(Bloomberg) -- Recently listed technology companies are defying gravity once again, surging further past Wall Street’s price targets and their larger peers. But a Bloomberg News straw poll of analysts and traders revealed a wide range of theories on the group’s gains, with no consensus about where the top may be.

This year’s initial public offerings by technology companies have risen an average 90 percent, weighted by offering size, according to data compiled by Bloomberg. That figure has grown from 77 percent yesterday and 66 percent on June 11. All other new listings have risen an average of 13 percent.

"The short-term fluctuation is obviously not my expectation," said Needham & Co. LLC analyst Jinjin Qian, who gave e-sport streamer Huya Inc. a Street-high $41 price target on Wednesday -- only to see the stock surge above $50 today.

Huya was up as much as 15 percent today, alongside another China-based streaming platform, iQIYI Inc. which jumped as much as 6.7% before paring those gains.

Dropbox Inc. jumped as much as 10 percent for a second straight day, trading 89 percent higher than its March 22 initial public offering price. The stock has eclipsed 11 of 13 one-year price targets awarded by sell-side analysts. Recent tech listings Zscaler Inc. and Zuora Inc. are also rising again, now trading above the one-year targets of all 16 analysts who cover them.

Here’s what some market participants told Bloomberg in interviews about this relentless group of stocks:

  • Rishi Jaluria, Dropbox analyst at D.A. Davidson
    • There’s nothing fundamental driving the stock price action
    • Recent strength may signal that a large, institutional buyer is taking a sizable position; notes that yesterday’s volume was roughly triple the average day, excluding earnings
    • Shares may also be rising on M&A speculation; Salesforce is the most likely buyer given it already holds a large stake
  • Jinjin Qian, Huya analyst at Needham
    • HUYA investors are realizing e-sports is going mainstream and Huya is the only pure-play on the secular trend; investor confidence also comes from its relationship with Tencent
    • People pouring money into this are looking three years out, where I would say there’s still upside to the current price
    • Chinese stocks like HUYA and IQ are valued below larger U.S. peers despite serving a potentially bigger market; investors see more room for growth
  • Ihor Dusaniwsky, head of research for financial analytics firm S3 Partners
    • Short activity has been very active, but today’s price move in DBX is "definitely not" short squeeze related
    • Any short squeeze would have a minimal effect on the stock price
  • Bruce Cox, senior vice president of investments at Stifel
    • Momentum traders are buying the China-based stocks and a short squeeze is being felt
    • DBX looks like the same type of momentum, "but less absurd"

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