Will Twilio's successful pricing finally open the tech IPO floodgate?

Jeff Lawson, co-founder and CEO of Twilio
Source: Twilio
Jeff Lawson, co-founder and CEO of Twilio

Twilio priced 10 million shares at $15, above the initial price talk of $12 to $14 a share.

It's the year's first unicorn to go public, and the first IPO to price above its proposed range since December. It's the first Silicon Valley tech IPO since Square went public in November.

Why the pricing above the range?

1) This is a hot space: Twilio is a coding platform that lets developers add voice and messaging to apps. The name of the game is to keep people in your app as long as possible. This helps accomplish that.

2) The offering is a very small float. Ten million shares are roughly 10 percent of the total float, with at least one investor already accounting for about 15 percent of that. Given the heavy demand and the small supply, a bump up is not a surprise.

This is an important step for the IPO market, which has been characterized by a very small number of offerings (39 year to date) and an investing public that is unwilling to bid up prices.

The average IPO deal has priced below the midpoint of the projected range on most occasions, on average 12 percent below, according to Renaissance Capital, which runs the Renaissance Capital IPO ETF, a basket of 60 of the most recent IPOs.

That unwillingness to bid up initial prices for IPOs has been a good strategy for IPO investors. They are making money. The 39 IPOs are on average trading 21 percent above their initial price.

Does this mean the IPO floodgates will open? Not necessarily. The IPO market typically takes a long time to heal after a traumatic event like the awful start to the year.

Still, this would be good news for Line, the Japanese messaging app that will launch a dual listing in Tokyo and New York beginning July 14. It's a big IPO: 35 million shares at $25 to $28.

Unfortunately, for those of us engaged in figuring out the next big IPO, the IPO process itself is not very helpful. There are not a lot of companies in public registration with the Securities and Exchange Commission, but there are likely dozens that have filed confidentially.

What does that mean? Under the JOBS Act, companies with revenue under $1 billion can file confidentially with the SEC. If the SEC approves the filing, the company can then quickly announce they are going public. They can publish an S-1 filing, do a road show, set terms, price and go public in as little as two weeks.

From anonymity to IPO in two weeks. Pretty amazing.

With that said, there are a few smaller tech companies that are floating out there that could pop up — they include big data startup Domo, which takes data from public and private sources and turns the data into charts and graphs; cybersecurity firm Optiv Security (backed by Blackstone); and software firm AppDynamics, which helps companies monitor the performance of their networked applications.

What about the 100-plus more famous tech unicorns with valuations north of $1 billion that are continuing to receive private funding? Many of them do not want to be subject to the harsh light of the public investor and are perfectly happy to stay private.

With that said, would a good showing among smaller tech IPOs in the next couple months could make companies like AirBnB, Cloudera, Dropbox, Evernote, Jawbone, Lyft, Pinterest, Roku, Spotify, or even Uber more interested in going public? It certainly wouldn't hurt.

By the way, not to toot our horn but CNBC has known about Twilio for a long time. Twilio has been on the CNBC Disruptor 50 list in all 4 years that we've done it. It was No. 39 on the list this year.

It's one of only eight companies to make the list in all four years (others include Uber, Airbnb, Dropbox, and SpaceX). It is also the 11th CNBC Disruptor to go public.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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