Alibaba raised $21.8 billion in its IPO on Friday, making it the world's largest IPO ever. At $94, Alibaba commands a diluted market value of $242 billion; it is now the 10th-largest US-listed company, just behind Walmart. With one deal, the total capital raised in the IPO market year-to-date jumped 54% to $62 billion. In terms of proceeds, 2014 is now the biggest year for the IPO market since 2000, when 406 companies raised $97 billion.
Alibaba, the defining IPO of 2014
Amid extensive media coverage, Alibaba's IPO went off without a hitch. It priced at $68, which drove high demand as the stock began trading on the NYSE up 36% at $92.70 and finished the day with a gain of 38%. That first-day pop represents about a $65 billion difference in market value. Its price initially leapt as high as $99 but primarily traded in a tight range between $92 and $94. Unlike some of its high-growth internet peers, Alibaba IPO'd with real earnings, giving it an anchor for investors to assign a meaningful multiple.
Some investors may be turned off by Alibaba after its unusually large first-day pop for a deal of its size, yet the stock offers a unique asset with a compelling story. Alibaba is the world's largest e-commerce firm with about $300 billion in gross merchandise volume transacted on its sites. With an 82% market share of all Chinese online shopping, 46% growth in the most recent quarter and a 58% EBITDA margin, there is no other Chinese e-commerce play with the scale, growth and profitability of Alibaba. The scarcity of a large cap stock with Alibaba's profile likely drove additional demand among fund managers. Its current strategy in China still has massive upside, but bullish investors may also believe the company can execute a global expansion and make intelligent acquisitions.
4 health care companies: biotechs outperform LBO
Before Alibaba's historic IPO began trading on Friday, four health care companies went public, and averaged a 12% return. All three biotechs spiked on the morning of their their debut before finishing the day considerably lower amid volume about 3-4x that of the normal IPO. Both ProQR (PRQR) and Tokai Pharmaceuticals (TKAI) had insiders buying on the offering, providing a vote of confidence and a lower float.
ProQR Therapeutics was the group leader, up 13% on the first day and 26% by Friday. A preclinical Dutch biotech developing messenger RNA repair therapies for cystic fibrosis, it jumped as high as 65% on Thursday morning.
Tokai Pharmaceuticals, which is developing small molecule therapies for prostate cancer, priced at the high end of the range and spiked 100% Wednesday morning but finished the day up 58% and fell on Friday. Tokai may represent an unmet need if it shows effectiveness with C-terminal loss patients, but relies on one drug with limited data.
Foamix Pharmaceuticals (FOMX), a biotech developing topical antibiotics for moderate to severe acne, became the latest Israeli biotech IPO to falter. After slashing its price by 45%, the stock shot up over 80% in early trading before finishing the day with a gain of just 4%.
Civitas Solutions (CIVI), which provides non-institutional care for the developmentally disabled, priced below the range and fell 3% by Friday. LBO'd by Vestar, the company relies heavily on government spending and with high debt levels, albeit in a grow market.
Renaissance Capital issued pre-IPO research for fund managers and institutional clients for each IPO.
| IPO pricings (week of September 15, 2014) | |||||
| Company (Ticker) | Business | Deal Size ($mm) | IPO Price vs. Midpoint | First day pop | Return as of 9/19 |
| Alibaba Group Holding (BABA) | World's largest e-commerce firm | $21,767 | 8% | 38% | 38% |
| ProQR Therapeutics (PRQR) | Biotech: mRNA repair for cystic fibrosis | $98 | 8% | 13% | 26% |
| Tokai Pharmaceuticals (TKAI) | Biotech: small molecule for prostate cancer | $97 | 7% | 58% | 23% |
| Foamix Pharmaceuticals (FOMX) | Biotech: foam treatments acne | $40 | -45% | 4% | 3% |
| Civitas Solutions (CIVI) | Care for the developmentally disabled | $199 | -21% | -2% | -3% |
As noted in our Fall IPO Preview, there are still plenty of mega deals in the IPO pipeline, including 14 on the calendar for next week, which are expected to raise $7 billion. Alibaba's successful IPO could encourage others to follow suit, as evidenced by the launch of e-commerce site Wayfair (W).
IPO market snapshot
So far this year, 195 IPOs have raised $62.4 billion and produced an average first day return of 14%. The Renaissance IPO ETF (symbol: IPO), a float cap-weighted basket of newly public companies and indicator of post-IPO performance, has gained 7.8% compared with 8.8% for the S&P 500. Over the last 30 days, the IPO ETF has risen 3.2% compared with 1.5% for the S&P 500, and is scheduled to add Alibaba as its top holding after the market closes on Thursday, September 25. The active IPO pipeline includes 143 companies looking to raise a total of $35 billion.
