Late Thursday, The Wall Street Journal reported that Snap (the parent of Snapchat) may file for an IPO as early as late March. The last funding round valued it at $18 billion, but the report says it may try to go public with a $25 billion valuation.
More tech stocks are starting to come out of the woodwork. BlackLine, an automated accounting and finance software, and Quantenna, a chip manufacturer for high-speed WiFi networks, both filed publicly last week. They could go public in as little as two weeks.
Chinese logistics firm ZTO Express — the UPS of China — has filed for an IPO seeking to raise up to $1.5 billion that would trade at the NYSE. No date has been announced, but with interest in IPOs at new highs, it's possible this could come before the end of the month.
What's behind the sudden interest?
- Markets continue to hold up — the single most important factor for IPOs.
- Existing IPOs have done well, and the most recent IPOs have traded especially well.
- The window to go public is closing for the year. The IPO business is expected to slow down around the presidential election, and between that and Thanksgiving there are only a few more weeks left in the year.
- Institutions have or will soon have cash thanks to a round of M&A deals. Battery Ventures' Neeraj Agrawal notes that just four recent M&A deals (Oracle buying NetSuite, Microsoft scooping up LinkedIn, Salesforce acquiring Demandware, and Vista Equity acquiring Marketo) are together worth about $40 billion. "But one implication of this M&A activity that is not being discussed much is that it represents $40 billion in cash being held by large investors that probably needs to find a new home soon, assuming all these deals close," he wrote.
Of course, those in the IPO business are happy, but some are already waving a "caution" flag.
"Because we had the shutdown in the market since April, investors have been nervous about valuation," Kathleen Smith of Renaissance Capital told me.
Her firm runs the Renaissance Capital IPO ETF, a basket of roughly the last 60 IPOs, which has risen almost 10 percent since the start of the third quarter.
Her point: The big moves up we have seen in some tech IPOs is largely due to conservative pricing.
"The companies that have come out have come out at low valuations compared to their peers and in some cases — like Nutanix and Coupa Software — priced below their last round of funding," she said. "So they have been leaving a lot of money on the table. Now that some are trading up notably on the first day, others will try to come out at higher prices — and that could be a problem."
In other words, there's already worry we might be entering the "greed" part of the IPO cycle.
From desert to frothy to greedy ... in a few weeks? Not yet. But welcome to the new, turbo-charged IPO cycle!