META Meta Platforms Inc

By Telis Demos And Maureen Farrell 

Shares of Alibaba Group Holding Ltd. dropped below their sale price from the biggest initial public offering ever last year, a sign that market turmoil could cause an even sharper slowdown in an already sluggish year for IPOs.

Alibaba shares dropped 3.5% Monday to $65.80, marking the first time the Chinese e-commerce giant has closed below $68, its debut price in September.

On Friday, shares of Twitter Inc., another erstwhile darling of the IPO market, fell below their 2013 offering price, joining other high-profile companies including Box Inc. and Etsy Inc. that recently have fallen below that level.

That disappointing performance, coupled with the broader decline in share prices triggered by fears of an economic slowdown in China, could give pause to both companies and investors contemplating IPOs. Companies are more likely to list their shares in strong equity markets, to maximize proceeds. Sharp swings in share prices also complicate IPO planning. Investors, meanwhile, are more likely to invest in issuers that offer the potential for long-term stock-price gains.

Returns investors get from buying into deals are falling more broadly, too. Last year, IPOs delivered an average 20% price gain through the end of the year, according to figures from Dealogic. After Monday's session, the average gain for a 2015 IPO is just 2%.

In a sign of the impact the current environment is having on the IPO market, genomics-research firm RainDance Technologies Inc. on Monday pulled the plug on an offering that was scheduled for this week, citing "market conditions." It didn't comment further.

Bankers and others involved in arranging IPOs said Monday that it was too soon to tell if more offerings would be scrapped, in part because late August is typically a slow period for share sales and the markets could recover by the time many investors return to their desks in September.

"We've gotten through turbulent times before and gotten right back on track," said Jackie Kelley, a partner at Ernst & Young LLP who leads the firm's IPO auditing, advising and consulting effort in the Americas. "But now you're dealing with some big macroeconomic issues."

She predicted that IPO activity in the remainder of the year will involve companies that have already declared their intention to go public, with those that are on the sidelines staying there until into 2016 or beyond.

High-profile IPOs that were expected later this year include those of financial-data processor First Data Corp. and retailer Neiman Marcus Group Inc.

The IPO market was already in the doldrums after notching its best year in more than a decade in 2014, in part because more tech companies, with a wide array of fundraising options, have chosen to stay private longer.

In the U.S., just 133 companies have gone public so far this year, raising $25.8 billion, according to Dealogic. That is down from 203 companies raising $46.7 billion through August last year.

The pipeline of companies set to come to market has also shrunk considerably versus where it was this time last year. Just 53 companies are currently lined up for U.S. listings, expecting to raise at least $7 billion, according to Dealogic. This time last year, 85 companies aimed to raise at least $10 billion.

To be sure, shares of some companies that have gone public in recent years have performed strongly. Facebook Inc. stock has more than doubled since its 2012 IPO. Shares of Fitbit Inc. and Shake Shack Inc. also are up a lot since they were first sold to the public this year.

The companies with arguably the most to lose from the IPO slowdown are private tech startups that have raised money at big valuations. The number of billion-dollar-plus private tech firms has grown from 79 in January to 115 at present, according to Dow Jones VentureSource.

Private-market valuations have been driven in part by the windfalls reaped by early investors in Silicon Valley stalwarts including Google Inc. and Facebook--and the strong initial performance more recently of others including Twitter and Alibaba. Within a month of its debut, Alibaba traded as high as $120 a share; Twitter stock enjoyed an even better early rise.

"You could argue that the IPO prices have been too high and are predicated on everything working right at a company," said David Hornik, a general partner at the venture-capital firm August Capital.

Private-equity firms also stand to lose from further weakness. They were considering taking public some of their biggest holdings later this year, including First Data, which has been aiming to raise more than $1 billion in an IPO, and Neiman Marcus, which was weighing one prior to the end-of-year holiday season.

Private equity-backed Univision Holdings Inc., the Spanish-language media company, is also on file for a possible 2015 listing, as is Petco Holdings Inc., the pet-store chain. Other high-profile companies that have been planning to go public this year include Ferrari NV, mostly owned by Fiat Chrysler Automobiles NV, and exercise chain SoulCycle Inc.

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(END) Dow Jones Newswires

August 24, 2015 19:36 ET (23:36 GMT)

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