High-profile techs jump over lowering IPO bars
NEW YORK - Technology start-ups Square (SQ) and Match Group surged in their first day as publicly traded companies, after scaling back their valuation ambitions.
"They are interesting companies, and there is interest there from retail investors, but certainly not to the level you'd see with Facebook (FB) and Twitter (TWTR)," JJ Kinahan, chief strategist at TD Ameritrade, said. "The general environment has IPO prices a bit muted, if you think about the expectations a few months ago, when the market was in rally mode."
Square, the six-year-old start-up known for its white, cube-shaped credit and debit card readers that plug into smartphones, rallied 50 percent, valuing the company at around $4.3 billion.
Underwriters for the company late Wednesday sold 27 million shares to investors at $9 a piece, significantly below the $11 to $13 Square had wanted and shaving in half the value of the company assumed by investors a year earlier.
That markdown was seen as a concession by the company, which is headed by Twitter co-founder and CEO Jack Dorsey, that investors are becoming wary of once-hot startups that haven't proven they can make money.
"Square isn't getting that much love -- but we're a firm that doesn't necessarily embrace the whole IPO thing -- we prefer our stocks to have earnings," Kim Forrest, senior equity analyst at Fort Pitt Capital, said. "Although they were the first notable company to come out and allow businesses to set up shop with an iPad and device, the more traditional card processors are probably better equipped to handle the business."
Shares of Barry Diller's Match Group, which runs the dating site Match.com and mobile app Tinder, rose as much as 16 percent, valuing the company at $3.34 billion. The company's IPO raised $400 million after its shares were priced at $12 each, at the low end of the anticipated $12-to-$14 range.
"Square did a great job balancing the two worlds of overvalued private companies -- Unicorns -- and appropriately priced public companies by pricing their IPO at the right level," emailed Art Hogan, chief market strategist at Wunderlich Securities. "Match is a different animal as it was a wholly owned subsidiary of publicly traded IAC that was spun out. Their pricing at the lower end of the range appears to be the new normal for IPO's where investors are looking very closely at initial valuations."
On Tuesday, the Wall Street Journal cited people familiar with the matter in reporting federal regulators were checking whether U.S. mutual funds have the right processes in in place to price shares of private technology firms amid signals the technology boom is faltering.
"It feels like we're at the end of the cycle, if the SEC is investigating unicorns at this point, the government is usually the last person to the party," Forrest said. "People want to own Uber, but you can't, so these mutual funds are coming in. If ordinary investors want into these hot, pre-IPO things, the market is probably stretched."