Did ZTO signal a “no go” on tech (specifically Chinese tech) IPOs?
Last week, Chinese package delivery firm ZTO Express got a listing on the US markets, and shares promptly fell 15 percent. Not the type of reception any company — or investor — wants as a welcome present for its tech IPO.
This was the biggest tech IPO (or IPO in general, for that matter) led by a Chinese firm in the US since a 2014 listing by Alibaba Group Holding (at $25 billion), the eCommerce juggernaut.
The stage seemed set, at least, initially, for a pop during the first day of ZTO’s trading. The tech IPO raised $1.4 billion on October 26, just before launch, and the pricing had been at $19.50 a share, nicely above the $16.50–$18.50 range that had been expected. The stock now trades at just under $16 — a busted IPO, in Wall Street parlance.
The so-called busted tech IPO seems to be a way of life on the Street. Consider the fact that, as Reuters has reported, seven of the 16 IPOs that priced in October were trading at or above the initial offer price, indicating that a majority have not made it to that level and have been viewed with disfavor by investors.
The usual suspects, on a broad level, are at play here. Yes, the market is volatile, with three straight down months. Yes, investors are worried about interest rates. But the stock market is not a monolithic entity. It is also a market of stocks.
Equity movements up and down must be viewed on a case-by-case basis. And in the case of Chinese tech firms (and many other tech firms), once-sanguine viewpoints have turned into pure bloodletting. With only a few hundred million dollars raised in 2015, down markedly from 2014, when these firms raised $29 billion (admittedly swayed by outsized Alibaba), valuation comes into play. Many of these firms lose money.
Many of them will find capital harder to come by if they continue to lose money (ZTO, say some observers, is on track for continued profitability, but it also has a huge customer in Alibaba, which speaks to revenue risk). And as has been well documented in the financial trade press, investors and would-be investors want to see solid play to turn red ink to black.
The slowing Chinese economy can’t be helping to install a lot of confidence, and when it comes to a rocky IPO road, sometimes the best choice is to stay on the sidelines.