“It’s not only moving that creates new starting points. Sometimes all it takes is a subtle shift in perspective, an opening of the mind, an intentional pause and reset, or a new route to start to see new options and new possibilities.” — Kristin Armstrong, former professional road bicycle racer, three-time Olympic gold medalist and unrelated to Lance Armstrong
“The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.” — Vladimir Lennon
Tech IPO Rush
In October last year, we wrote (emphasis added):
Over the last twelve months there has been little to no incentive for venture capital backed companies to go public. They have had a much better alternative that does not come with the scrutiny faced by a publicly listed company: sell to SoftBank’s Vision Fund.
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Given the recent events surrounding Saudi Arabia and deceased Washington Post columnist Jamal Khashoggi, there is likely to be little appetite in Silicon Valley to accept Saudi Arabian money henceforth.
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Given recent developments and Silicon Valley likely to shy away from engaging the Vision Fund any further, we suspect many venture capital backed “unicorns” are actively soliciting proposals from investment banks to help them go public.
We expect a flurry of tech-led IPO activity in the first half of 2019.
After a delay caused by the US government shutdown, the markets are starting to see a flurry of tech IPO activity materialise.
- The other ride hailing company, Lyft, has already filed for its IPO, which is said to be oversubscribed and set to surpass the US dollars 23 billion valuation the company was seeking.
- Social content sharing platform Pinterest has filed its S-1 and is expected to go public in April.
- Postmates, the food delivery app, announced in February that it had filed with SEC to go public. The company was last valued at US dollars 1.85 billion.
- Zoom Video Communications, the video conferencing startup and one of the few profitable unicorns, recently filed to raise US dollars 100 million through an initial public offering.
- Messaging platform Slack is taking a slightly approach, similar to the one taken by Spotify previously, and will be directly listing on to the markets without a public offer. A direct listing allows current investors to offer their stakes directly to new shareholders priced purely on demand. The company was valued at $7.1 billion in a $427 million funding round in August.
- The biggest and the most awaited of them all, the riding hailing company Uber is on track to publicly list at an estimated valuation of US dollars 120 billion.
There are, however, some startups that have indicated that they may delay their plans to go public. Notably:
- Airbnb, the company recently valued at US dollars 35 billion, is also amongst the select group of profitable unicorns and recently acquired HotelTonight to expands its product offering. The company has previously expressed its intention to go public in 2019 but has recently cast some doubt on those plans.
- Software and internet security services startup Cloudflare, which was rumoured to have filed for an IPO in October last year, recently raised US dollars 150 million in a financing round led by Franklin Templeton.
The recent flurry of tech-led IPO activity is reminiscent of the tech bubble at the turn of the millennium.
The S&P 500 peaked on 24 March, 2000. Some of the notable public listings in and around the time of the market peak included:
- Finnish national telecom operation Sonera Corporation’s listing in the US during October 1999
- The listings of Charter Communications and United Parcel Service during November 1999
- Chip manufacturer Infineon Technologies listingin March 2000
The biggest of the tech bubble IPOs came a little over a month after the S&P 500 peaked. AT&T Wireless Group listed on 27 April 2000.
Similarly, The Blackstone Group went public on 21 June 2007 and the S&P 500 peaked in October 2007 at less than 3 per cent above the level it was on the day the alternative investment manager listed. The largest pre-Global Financial Crisis IPO was of Visa, which listed in March 2008, a few months after the market peaked.
Will Uber’s mega-IPO mark the peak in S&P 500 this time round? We are not sure but when CNBC runs the below headline, it feels ominous!
From Lyft to Airbnb, investors shouldn’t worry the newest tech IPO rush signals a market top
Where Should Investors Hide?
Three and five years on from the S&P 500’s peak in March 2000, gold was up 14.7 per cent and 48.6 per cent, respectively. Respectable not spectacular.
Three and five years on from the S&P 500’s peak in October 2007, gold was up 58.1 per cent and 139.1 per cent, respectively. Spectacular.
You could always own some fixed income, of course. From recently published research on the the Federal Reserve Bank of New York’s Liberty Street Economics blog (emphasis added):
Long-term government bond yields are at their lowest levels of the past 150 years in advanced economies.
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[L]ow interest rates in advanced economies are a secular phenomenon driven by global forces that emerged well before the Great Recession and that are unlikely to be connected to country-specific factors, such as national policies or other domestic developments. Therefore, whatever forces might lift real interest rates in the future must be global, such as a sustained pickup in world economic growth, or a better alignment of global supply and demand with respect to safe and liquid assets.
Given the above, we think it will be difficult for bonds to go much higher from here. And even if they do, whatever takes them higher is likely to take gold much higher.
Don’t be fully invested in gold, but have some for a rainy day.
This post should not be considered as investment advice or a recommendation to purchase any particular security, strategy or investment product. References to specific securities and issuers are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.