The First-Day Pop Is Back as Wall Street Gets Whiff of IPO Fever
Companies are surging out of the gate, the latest being Chewy.
(Bloomberg) -- It may not be 1999 on the calendar but it’s starting to feel like it going by appetite for brand-new public offerings.
Companies are surging out of the gate, the latest being Chewy Inc., whose first-day gain Friday swelled at one point to 88 percent. Yesterday, Fiverr International Inc. closed 90 percent higher in its initial session, and on Wednesday Crowdstrike Holdings Inc. jumped as much as 87 percent.
For many, 2019 was billed as the year appetite for new issues would finally catch up with enthusiasm for a stock market that has been powering higher for a decade. While the story has had its subplots, namely Uber Technologies Inc., which slid 18 percent over its first two days, the past week showed animal spirits are far from dormant.
“People want to know what the next hot thing is going to be,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. “There is a lot of risk, there is a lot of adrenaline, my eyebrows are raised when I look at the screen. Animal spirits are clearly running high.”
It’s a trend that was building prior to Chewy and Crowdstrike. Beyond Meat Inc. surged 163% in its first session last month and has since extended the gains. Alzheimer’s research firm Cortexyme Inc. jumped 93% a week later. Earlier this year, great first days by the likes of Pinterest Inc. and Zoom Video Communications Inc. foreshadowed the frenzy.
In total, more than a dozen IPOs surged by at least 50% in their debut sessions this year. The pops are driving outperformance in IPOs that have kept the deals flowing despite Uber’s debacle.
“Rallies of this kind aren’t necessarily bad for bankers, who want to see a pop,” Zaccarelli said. “A big rally on the first trading day always brings more buzz. There is definitely a lot of buzz around these IPOs.”
While Uber rival Lyft Inc. tends to be lumped in with this year’s duds -- indeed, it’s the worst performing IPO to raise at least $400 million, even it got love on its first day, rising 21%. A Bloomberg analysis of companies that debuted since the financial crisis and popped more than 100% in their first day of trading shows that most stocks have fallen since their initial surge.
The wild trading has created plenty of winners, but the euphoria can only last so long, said Matt Maley, equity strategist at Miller Tabak & Co.
“It’s worrisome. Even the biggest bulls agree that the economy is slowing, but people assume that the valuations that are becoming stretched are fine because the Fed is going to save the day," Maley said. "It seems to be mindless and it won’t end well.”
To contact the reporters on this story: Drew Singer in New York at dsinger28@bloomberg.net;Elena Popina in New York at epopina@bloomberg.net
To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Chris Nagi, Jeremy Herron
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