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JD.com raises $3.9 billion in 2020’s second-biggest IPO so far
JD.com, the second-largest online retailer in China, has raised $3.9 billion during its secondary listing on the Hong Kong Stock Exchange.
Shares will start trading in Hong Kong on Thursday 18th – the same day as the company holds its massive annual Anniversary Sale (known as 6.18). Last year JD.com reported sales of almost $30 billion – this week’s event will be a key test of demand as China continues to recover from lockdown and battles a fresh outbreak of Covid-19 cases.
The JD.com IPO follows a public offering by NetEase which raised $2.7 billion. Together the two tech giants have raised $6.6 billion – almost double what the rest of the Hong Kong IPOs have raised all year.
NetEase shares ended their first day of trading up 5.7%, closing HK$7 higher than its offer price of HK$123.
Hong Kong IPOs get a boost on US-China tensions
Increasing tensions between Washington and Beijing have helped stoke the Hong Kong IPO market recently. The US House of Representatives is considering a bill that would mandate US-listed Chinese companies to undergo financial audits, which could result in a number of companies being delisted.
This has prompted many companies whose shares are already traded in the US to seek a secondary listing in Hong Kong as a precaution.
NetEase acknowledged the impact that rising tensions could have in its IPO filings. Baidu founder and chairman, Robin Li, also acknowledged recently that his company could consider a secondary listing in Hong Kong if the US government tightens regulations surrounding Chinese firms.
More IPOs on the way
This could be the start of a reawakening for the IPO market in Hong Kong. China Bohai Bank Co is looking to raise over $2 billion, while both Smoore International Holdings and SK Biopharmaceuticals are expected to raise around $800 million.
Upcoming Hong Kong IPOs
- China Bohai Bank
- SK Biopharmaceuticals
- Hygeia Healthcare Holdings
- Kangji Medical Holdings
- Smore International Holdings
- Zhenro Services Group
How to trade IPOs – 3 ways to trade IPO stocks with Marketsx
IPO stocks can offer some of the biggest trading opportunities on the market. Initial public offerings, or IPOs, attract a lot of attention and the IPO market is closely watched to find the next big stock.
Marketsx gives you three ways to trade IPO stocks: CFDs on newly listed shares, grey markets to trade companies pre IPO, and the Renaissance Capital IPO ETF.
Trade IPO stocks the day they are listed
We are always adding new stocks to the platform, and this includes many newly listed companies following recent IPOs.
Traders have been able to trade CFDs on many IPO stocks on the day of their market debut.
Use grey markets to trade pre IPO
Can’t wait to start trading the next big IPO? With our grey markets, you don’t have to. Grey markets allow you to take a position on a company pre IPO by speculating on their eventual market capitalisation.
A company’s market cap depends on the price the company sells its shares for. Pre IPO, the company will give a target price range for its shares, and this will often be adjusted higher or lower to reflect market demand.
If you think the company’s eventual market capitalisation will be higher than is currently expected, you can trade the grey market long.
If you think the company is being overvalued, and its market capitalisation will be lower than expected, you can trade the grey market short.
In the past our clients have been able to trade companies such as Lyft, Uber, Peloton, Saudi Aramco, and Aston Martin pre IPO with our exclusive grey markets. We’ll keep our article on the hottest upcoming IPOs in 2020 updated with information about future grey markets.
Renaissance Capital IPO ETF
The Renaissance Capital IPO ETF allows you to trade the performance of the freshest stocks listed in the US.
It only features stocks that went public in the last two years so it is a great way to capture the performance of the newest companies on the market.
The most significant IPO stocks are added to the ETF straightaway, and the fund is updated quarterly to make sure it includes all the important stocks to go public recently.
IPO: The ultimate trader’s guide to initial public offerings
An initial public offering or IPO can be an exciting trading opportunity. It’s the first chance that most investors and traders get to grab a slice of some of the hottest new companies.
But what is an IPO, and how does it work?
In this article:
- IPO meaning
- How does an IPO work?
- IPO versus direct listing
- Can I trade IPOs?
What is an IPO?
An IPO, also known as a flotation, is where a private company sells new shares to public investors. It’s a way of raising capital to fund further growth and innovation, and also allows existing investors to reap the rewards of backing the company during its start-up phase.
Up until this point, the company is privately owned by the people founded it, and any staff or early investors who were given shares.
How does an initial public offering work?
A company that wishes to go public will need to meet certain criteria laid out by the domestic market regulator – such as the Securities and Exchange Commission (SEC) in the United States. Companies can also choose what exchange they want to list on, such as the New York Stock Exchange or the NASDAQ, and these too have their own requirements.
Companies need the help of an underwriter or underwriters to hold an IPO. These are investment banks such as Goldman Sachs, Morgan Stanley, and JPMorgan, and are responsible for arranging and marketing the initial public offering.
It’s common for underwriters to assume all the risk of the IPO by buying all of the new shares being issued by the company, and then selling the stock to public investors.
IPOs: Roadshows and pricing
In the run-up to an IPO, a company will issue a prospectus and hold investor roadshows across the country in which it is listing in order to drum up interest in the flotation. The prospectus will give a target price range for the shares to be issued. This is often adjusted to reflect market demand as the company’s stock debut draws near.
Sometimes the stock of the company is so in demand ahead of its initial public offering that the company decides to issue more shares than originally planned – usually the underwriters are given the power to automatically increase the size of the issuance by a set amount of shares if demand warrants it.
Check out the upcoming 2020 IPOs to stay on top of the roadshows and pricing data of this year’s most anticipated public offerings.
What happens if demand is higher or lower than expected?
Although the underwriter buys the new shares at the final initial offer price, the stock can open above or below this price on its first day of trading. If the company going public and the underwriters have overestimated demand for the stock, the underwriter may have to sell the shares for a lower price than it bought them.
And if demand has been underestimated, the underwriter may be able to sell the stock for a much higher price than it bought them. Doing so is likely to damage their reputation, however, so underwriters have an incentive to try and sell the shares for as close to the initial offer price as possible.
What’s the difference between an IPO and a direct listing?
Companies who don’t want to hold an initial public offering may instead opt for a direct listing. With an IPO, the company going public is selling new shares, giving away control of more of the business.
A direct listing, on the other hand, is where a company allows its existing shareholders to sell the stock on public markets. This allows early investors to reap the benefits of backing the company, and allows the company to trade publicly without giving away control through the issuing of new shares.
A company does not need to hire underwriters in order to hold a direct listing – saving it a lot of money in fees. This also means existing investors may be able to sell their stock for a higher price.
Can I trade IPOs?
IPOs can represent some of the biggest trading opportunities on the stock market. Companies such as Beyond Meat have seen their stock surge since they went public, while others, like Uber and Lyft, have performed poorly.
With Marketsx you can trade companies before they go public with our exclusive grey markets, or trade CFDs on the hottest companies on the day they debut, as well as taking positions on ETFs that track the newest stocks on the market.
IPO market coming back to life?
The Covid-19 pandemic rocked global capital markets, creating seismic volatility in equity markets and leaving many planned IPOs Covid casualties. But as risk appetite recovers and there is still a lot of cash sitting on the side lines we are seeing the frozen IPO market starting to thaw.
JDE Peet raised €2.25bn last week in what was Europe’s biggest IPO since 2018, with shares pricing at the upper end of the proposed range and then quickly rallying from the IPO price to trade around €37. This was a very encouraging debut and may well for companies seeking to list this year – or at least in June.
Warner Music Group is due to IPO tomorrow (Jun 3rd), leading a group of companies that are expected to raise over $3bn. Warner Music is aiming to raise $1.8bn, selling 70m shares, or about 14% of the company. Shares are due to be priced at between $23 and $26 each. Plans for the IPO were shelved in February due to the coronavirus pandemic.
ZoomInfo is also due to IPO this week (Jun 4th) and will price the stock between $19 and $20, having previously expected to price between $16 and $18.
Pliant Therapeutics expects to IPO tomorrow with shares offered at between $14 and $16. It has also increased the offering from 6m shares to 9m shares, indicating decent demand.
Legend Biotech will IPO on Friday (Jun 5th) with an offering of 18.4m shares priced at $18-$20, which is expected to raise $350m.
These IPOs will be important tests for capital markets in the wake of the coronavirus pandemic, which needless to say rattled investor confidence. Clearly though, whilst sentiment is still a little frayed, we are seeing improved risk appetite and investors are sitting on chunks of cash that need to be put to work.
The S&P 500 is above 3050 and its 200-day moving average, whilst the Vix is under 30. The market is significantly calmer than it has been, albeit on forward valuations it does look rather pricey, which demands a pullback.
Nevertheless, now that central banks have all but killed bond markets, the action is shifting back to equity markets and cash needs to find a home.
We will be watching these closely to see whether it encourages some of the larger names and ‘unicorns’ such as Airbnb, Robinhood, Instacart or Palantir to come back to the IPO table this year in spite of the pandemic.
European equities rally as euro, pound crack lower
European markets were on the front foot on Friday morning despite a weak cue from the US and Asia as currency weakness and expectations for yet lower interest rates fuelled risk appetite. Asian shares plumbed a three-week low but European bourses are trading up again. The FTSE 100 continued the good work from Thursday to hit 7400 and make a clear break out of the recent range. With the move north a decent case to make for the 7450 area, the 61.8% retracement of the August retreat.
The S&P 500 declined quarter a percent to 2977.62 against a back drop of political uncertainty in Washington. Markets won’t like these impeachment hearings but ultimately the risk of Mr Trump being ousted by Congress appears very slim indeed.
Another stinker of an IPO – Peloton shares priced at $29 but were down $2 at $27 on the first tick and ended 11.2% lower at $25.76. First day nerves maybe but this stock has fad written all over it. Think GoPro.
On the matter of dodgy prospectuses and dubious IPOs… S&P has downgraded WeWork debt another notch, and slapped a negative outlook on for good measure.
FX – the euro now looks to be on the precipice, on the verge of breaking having made fresh two-year lows on EURUSD. Whilst the 1.09 level may still hold, the banging on the Sep 3/12 lows at 1.09250 has produced a result with overnight tests at 1.09050. We’ve seen a slight bounce early doors in Europe but the door is ajar for bears. The Euro is under pressure as ECB chief economist Lane said there is room for more cuts and said the September measures were ‘not such a big package’. How much more can the ECB feasibly do?
Sterling is tracking lower against the broader moves in favour of USD. There is a chance as we approach crunch time on Brexit that GBPUSD pushes back to the lower end of the recent range, the multi-year lows around 1.19. Bulls have a fairly high bar to clear at 1.25. At time of publication, the pound had cracked below yesterday’s low at 1.23, opening up a return to 1.2280 and then 1.2230. The short-covering rally is over – time for political risk to dominate the price action.
Bank of England rate setter Saunders made pretty dovish comments, saying it’s quite plausible the next move is a cut. In making the case for a cut now it conforms to the belief in many in the market that the Bank is barking up the wrong tree with its slight tightening bias in its forward guidance. The comments from Saunders are clearly an added weight on the pound.
On Brexit – there’s a lot of noise of course and all the chatter is about MPs’ use of language and how could Boris possibly still take the UK out of the EU by October 31st without a deal. The fact is he can and he intends to. There is some serious risk that GBP declines from here into the middle of October on the uncertainty and heightened risk of no deal. This would then be the make or break moment – extension agreed and we easily pop back to 1.25, no deal and it’s down to 1.15 or even 1.10.
Data to watch today – PCE numbers at 13:30 (BST). If the core CPI numbers are anything to go by, the Fed’s preferred measure of inflation may point to greater price pressures than the Fed has really allowed for. Core durable goods also on tap, expected -1.1%. Plenty of central bank chatter too –de Guindos and Weidmann from the ECB follow Lane and then Quarles and Harker from the Fed. Should keep us busy this Friday.
Oil is in danger of entirely fading the gap back to $54.85, the pre-attack close, having made a fresh low yesterday at $55.40. There’s still a modicum of geopolitical risk premium in there though, but bearish fundamentals are reasserting themselves over the bullish geopolitics. WTI was at $56.10, ready to retest recent lows at $55.40. Bulls require a rally to $57.0 to mark a gear change. However we are now touching the rising trend support line drawn off the August low at $50, so could be finding some degree of support.
Gold is pretty range-bound now, but we are seeing it test the $1500 level which could call for retreat to near $1482, the bottom of the recent range and key support.
WeWork sets the bar lower as existing investors push to postpone IPO
Co-working firm WeWork is on the brink of IPO, but it seems like We might have some problems.
It seems that being a fast-growing tech company isn’t enough anymore; investors need a well-defined path to profitability as well.
Which has been a real kicker for the likes of Uber, Lyft, and IPO-hopeful WeWork, none of which is anywhere near actually making a cent.
WeWork was last valued at $47 billion during a private round of funding. But now it’s rumoured that WeWork will be seeking a $20 billion valuation or lower at IPO – and that’s if it even goes ahead at all.
Do existing investors want to halt the IPO?
Last week it was reported that CEO Adam Neumann had flown to Tokyo to meet with SoftBank Group – one of the company’s biggest investors. Amongst the ideas floated was the possibility SoftBank could provide another capital injection so that the IPO could be postponed until 2020.
Whether SoftBank will or not remains to be seen. The company might be feeling stung at having committed to investing $4 billion at a valuation of $47 billion when there is no chance WeWork will hit that kind of market capitalisation when it goes public.
SoftBank has to be careful. The company’s largest investment was in Uber – pouring billions into yet another dire tech company float would not reflect well on a company look to raise money to launch a second tech-focussed Vision Fund.
It isn’t just in conversation with SoftBank that the idea of shelving the IPO has been raised. Some existing investors, perturbed by the reception the IPO prospectus has garnered are suggesting putting things on hold.
Executives at WeWork showed they are not entirely unaware of the market reaction to unprofitable tech companies. Both Uber and Lyft are well below their initial offer price. But they were wrong if they thought even more-than-halving the valuation would be enough to placate concerns –especially when similar-sized competitor IWG is profitable and yet only valued at $4.6 billion.
There are other issues bothering investors anyway, who have concerns over the way the business is run, it’s structure, and the huge concentration of power.
WeWork’s share structure includes three classes; CEO Adam Neumann owns 2.4 million class A shares (<1.5%), 113 million class B shares (98%) and 1.1 million class C shares – that’s all of them. Class A shares give one vote, class B and C each grant 20. Neumann’s total holdings equates to 2.27 billion votes.
The co-founder occupies a large amount of space in the Risks section of the company’s S-1 filing due to potential conflicts of interest. Neumann has, or had, significant operational interest in several of the locations WeWork leases. He also charged the company almost $6 million to use the We trademark (WeWork is owned by The We Company – the structure is very complicated and has created further unease amongst investors).
WeWork scrambles to avoid becoming the next IPO flop
At the start of the year, Uber and Lyft seemed like exciting prospects. Markets looked likely to get swept along by the spiel of these cash-burning, lossmaking companies. But it seems Uber and Lyft failed to provide a convincing response to the profitability question.
It shouldn’t be a surprise, then, that when WeWork released its prospectus, complete with an admission it may remain unprofitable ‘for the foreseeable future’, investor response has been cold.
WeWork seems to have realised that its current offering isn’t enough to get the market onboard. But with expectations that its roadshow could begin this week, does the company have enough time to fix such deeply-entrenched issues as corporate structure and distribution of power, let alone its financial outlook, in time to avoid becoming 2019’s next big IPO flop?
Week Ahead: Uber IPO incoming, Lyft reports earnings, Walt Disney awaits the Endgame
Coming up this week: one of the biggest IPOs in history as Uber goes public, communications and policy decisions from several leading central banks, as well as key company earnings reports.
Traders seem to be in a frenzy ahead of Uber’s highly-anticipated stock market debut, but will the poor performance of rival Lyft have tainted the shares? Earnings season may be slowing, but there are still some top companies left to update. The focus of much of the week for the FX market will be commentary from central bankers. Top tier UK and US data on Friday could be another source of volatility.
Uber: huge demand, high valuations, no profits
How much are markets willing to pay for a unicorn that sucks in cash and has yet to make a profit? Up until Lyft’s IPO, it seemed the answer was ‘a lot’. But despite opening over $15 above its IPO price, Lyft stock quickly tumbled. As happened to Snap Inc a couple of years back, a must-have stock quickly became a damp squib. Those IPO prices seem like distant memories for the languishing share price.
Ride-hailing giant Uber could be different. While also not profitable, the company dominates the domestic market, has a huge international presence, and boasts several other strings to its bow that Lyft doesn’t, such as Uber Eats and Uber Freight. The company is even working to develop flying taxis.
Uber will go public on Thursday 10th, potentially raising up to $10 billion for a valuation in excess of $80 billion. Has the debacle of Lyft shown that markets aren’t really that eager to hold a piece of a loss-making tech startup? Or is this an indicator that in the battle of the ride-hailers, traders are waiting to throw their backing behind Uber?
Forex: central banks dominate the week until Friday’s top tier data
The Reserve Bank of Australia announces its latest official cash rate decision during the Asian session on May 7th. This is just the start of a string of policy communications from some of the world’s biggest central banks. The Bank of Japan publishes its Summary of Opinions and policy meeting minutes in the following session. The Reserve Bank of New Zealand follows with its OCR decision. There’s also a press conference and inflation expectations from the RBNZ to watch.
The European Central Bank publishes the accounts of its latest policy meeting during Tuesday’s European session. As with most of these communications, the risks seem tilted to the downside. The Federal Reserve is still cautious, albeit less so following last week’s FOMC meeting, so it’s hard to see how any of the other world’s central banks could find much room for optimism. We’re certainly not expecting that from the BOJ or the ECB.
Markets are unlikely to be expecting bullishness from President Mario Draghi and colleagues. Even so, there are still downside risks to the euro if it seems that the Governing Council seems in favour of more quantitative easing. A more bullish case for EUR/USD notes the descending impulse wave pattern on the daily chart. Five complete waves in the trend suggesting a potential three wave correction which could push the pairing higher.
Meanwhile, the Aussie is braced for a potential rate cut. Nothing is a given, but there is a strong consensus amongst analysts that a downward move is imminent. Meanwhile, the RBNZ will likely signal that it intends to remain sitting on its hands for a long time to come. Perhaps frozen policy could be an upside for the Kiwi, with traders breathing a sigh of relief that the RBNZ isn’t planning on following the RBA on a more dovish trajectory.
False hope from UK growth data, US CPI could dash rate cut hopes further
US CPI figures wrap up the week, which could tilt the US monetary policy outlook ever-so-slightly back towards the hawkish side of the spectrum. A solid consumer price index reading, while not the Fed’s favourite measure of inflation, could give markets reason to expect a little more optimism at the next policy gathering.
The UK’s first quarter GDP print is also due on Friday. This could make interesting reading. While analysts generally agree that the UK economy is likely to slow this year, as Brexit uncertainty and softer global growth conditions weigh on output, companies have been busy stockpiling ahead of the UK’s departure from the EU. This flurry of activity could inflate the first-quarter reading. It’s already helped push some for the PMIs for the January-March quarter higher.
Equities: Lyft to chronicle losses, Disney to pave the way for Q3 strength
Earnings season may be winding down, but there are still some points of interest on this week’s calendar. BMW kicks things off with its Q1 earnings during Tuesday’s European session. The highlight, however, will be the after-market first-quarter results from Lyft.
It’s been a bumpy road for the ride-hailing company since its IPO. The stock has plummeted following the traditional debut surge to trend around 30% lower.
The issue of profitability is key. Lyft will undoubtedly report another large loss for the first quarter. Traders will want to know how quickly the company can slow the cash burn and when management envisions the company entering the black.
Lyft had better make some progress fast, or it could see itself becoming another Tesla – constantly battling the short sellers and limping from quarter to quarter.
There are a trio of euro stocks due on Wednesday: Siemens, Commerzbank, and Wirecard. After being hit by an accounting scandal over the past few weeks, Wirecard will be hoping to return the focus to its fundamentals and away from its business practices. A poor set of numbers could see Wirecard tumble, especially as there is no longer a ban on shorting the stock.
Walt Disney releases prequel to highly-awaited Q3 results
Walt Disney releases its Q2 figures after the US closing bell on Tuesday. The House of Mouse is riding high at the moment, boosted by the recent announcement of its long-awaited streaming service, and the storming box office success of the Avengers: Endgame, the studio’s latest Marvel superhero offering. With the record-breaking film having been released during the company’s fiscal third quarter (a period which also contains the hugely-successful Captain Marvel) management’s latest guidance should make for interesting reading.
Thursday brings fourth-quarter earnings from BT Group and AGMs from Adidas and Ford Motor Co.
Indices: S&P to retreat from highs as rate cut odds dwindle?
The S&P 500 hit a fresh record intraday high last week, as well as notching up a record closing high. The strong number of beats this earnings season (against a particularly low set of expectations) helped push markets that little bit higher.
But equities lost a key fundamental driver last week. The Federal Open Market Committee concluded that the US economy is on a pretty solid footing, even if it is lacking inflation and recent PMI’s have been softer than hoped.
This means the odds of a rate cut this year aren’t as high as the markets have been counting on. Indices were quick to undo some of their previous bullishness. President Donald Trump may be demanding a 1% cut to the federal funds rate and another round of quantitative easing, but the Fed won’t bow to such request and this has left the equity rally looking overextended.
Forget earnings – Lyft set to release Q1 loss report
LYFT caused quite a stir when it held its IPO in March. The offering was quickly oversubscribed (as is Uber’s), and shares eventually hit the market at $87.24 – well above the company’s $72 per share offer price.
Initial public offerings tend to start with a bang – stock often rockets higher before settling down; as Lyft’s did when it closed its first day of trading at $77.75. It only took one more session to drop below its $72 offer price, and the rout has continued ever since. At the time of writing, Lyft is trending 30% below its offer price, languishing sub-$60.00.
More pain incoming for Lyft stock?
It seems that owning a piece of a unicorn that is yet to make a profit but is valued at over $26 billion quickly lost its shine. Tech IPOs are always exciting, because everyone hopes to end up holding a piece of the next Facebook, but so far Lyft looks more likely to follow in the footsteps of Snap Inc, which has never come anywhere close to reclaiming 2017’s starting price and is currently 62% below it.
Profitability is the key issue. Ride-hailers like Uber and Lyft may have disrupted the traditional taxi market, but so far they are burning through cash fast. In its IPO filing, Lyft revealed that it made a net loss of $911 million in 2018, up 23% from 2017. However, revenue was growing faster, with 50% growth to $2.2 billion recorded last year.
Markets will be looking to see whether Lyft can continue the rapid pace of revenue growth, while those losses need to be reined in. A slower pace would be a good start, but really markets want to see that number reversing as the company hopefully moves towards profitability. Will management offer any guidance regarding a timeline for that?
The stock will live and die on those expectations; growing market share or increasing revenue per ride will mean nothing if the company keeps piling up the losses.