Two IPOs raised $275 million this week after steep valuation cuts. Both disappointed, finishing Friday at the offer price. They weren't alone: The S&P 500 declined 1.9% during the week, making headlines for its 9-day losing streak. While both companies operate in very different sectors, Smart Sand in energy and GDS Holdings in Chinese Internet usage, each was pitched on an ability to execute a rapid revenue ramp, and IPO investors heavily discounted those future growth projections.
| 2 IPOs Priced During the Week of October 31st, 2016 | |||||
| Issuer Business |
Deal Size ($mm) |
IPO Market Cap ($mm) |
Price vs. midpoint |
First day return |
Return at 11/4 |
| GDS Holdings (GDS) |
$146 | $946 | -23% | 4% | 0% |
| Leading provider of high-performance carrier-neutral data centers in China. |
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| Smart Sand (SND) | $129 | $377 | -33% | 0% | 0% |
| Mines and processes raw frac sand used in oil and gas drilling. |
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Investors step into quicksand
Smart Sand (SND) - A play on the rebound in oil and gas drilling, this company mines and processes frac sand to sell to oilfield services firms (e.g Weatherford) and E&Ps (e.g. EOG). While Smart Sand is well-positioned to benefit from an increase in frac sand demand, the drilling rebound is still in very early stages, which explains in part why it priced at $11, well below the $15-$18 range. Additionally, all its peers have pulled back recently due to a dip in oil prices, averaging a -10% return over the past month. It debuted on Friday and closed nearly flat at $10.99.
Data centers disappoint
GDS Holdings (GDS) - Offering large-scale and high-performance data centers, GDS is a leader in the carrier-neutral segment of the Chinese data center market with 25% share, based on area committed. It debuted on Wednesday at $10, well below the $12-$14 range, and closed the week flat. While GDS boasts long-term contracts and a substantial backlog in a fast-growing market, it faces high execution risk from its planned expansion, which will nearly triple capacity over the next few years.
IPO Market Snapshot
The Renaissance IPO Indices are market cap weighted baskets of newly public companies. The Renaissance IPO Index is down 6% year-to-date, while the S&P 500 is up 2%. Renaissance Capital's IPO ETF (NYSE: IPO) tracks the index, and top ETF holdings include Citizens Financial Group (CFG) and Alibaba (BABA). The Renaissance International IPO Index is down 3% year-to-date, compared to +1% for the ACWI ex-US Index. Renaissance Capital’s International IPO ETF (NYSE: IPOS) tracks the index, and top ETF holdings include Recruit Holdings and Cheil Industries. To find out if this is the best ETF for you, visit our IPO Investing page.
