A rush of technology floats has been one of the best features of a booming IPO market. More than $1.5 billion has been raised for tech floats in the past two years and more are on the way.
This year’s tech IPOs include iSentia Group, 3P Learning, Gentrack Group, Vista Group International, 8common, Urbanise.com and Rewardle Holdings.
Upcoming floats of early warning network provider Aeeris, e-commerce provider eCargo Holdings, workforce software stgeloper Enverro, and investment fund Bailador Technology Investments will further swell the ranks of tech IPOs.
Reverse takeovers, or so-called “backdoor listings”, are also featuring as tech companies vend their assets into the corporate shells of failed mining exploration companies. The reverse listing of cloud-computing provider Bulletproof Group (via Spencer Resources) and the listing of global data security company Covata (via Prime Minerals) are examples.
This year’s strong tech IPO market follows last year’s floats of Freelancer, iSelect, OzForex Group, iBuy Group, Smartpay Holdings, and 99 Wuxian. These floats collectively raised almost $800 million, although their performance has been mixed since listing.
Last year’s crop of tech floats looks more interesting than this year’s, partly because, for most of news listings, I like to watch how IPOs perform in the aftermarket before rushing in. Floats that shot out of the blocks on listing often come to the field within a year or two.
Here are three floats from 2013 that stand out at current prices. Active investors might wait until each forms a share-price base and starts to turn higher. Long-term value investors who can withstand volatility might move earlier.
The provider of online international payment services had been a star IPO, soaring from a $2 issue price to as high as $3.50 within six months of listing, after raising $439 million in November 2013. But it shed almost a quarter of its value in late May after announcing lower-than-expected growth in customer acquisitions and higher costs. A slightly softer-than-expected first-quarter trading update also weighed on OzForex, which now trades at $2.50.
The sell-off looks overdone. OzForex has a valuable position as an industry disruptor in online foreign-exchange services, and it should benefit from currency volatility as more small business owners lock in their currency exposure rather than wait, as they did when the Australian dollar was stronger. Long-term growth in the US is another positive.
With less than 5 per cent market share in Australia, OzForex has good growth prospects and could make a handy acquisition for a multinational travel provider that wants to move into the forex services market and take some share off the banks. Morningstar has a $3.40 fair value.
Chart 1: OzForex Group
This column had success with iProperty Group and iCars Asia, but fared less well with the third of the floats from the Catch Group stable, iBuy Group. I wrote about the e-commerce provider for The Bull in May when it traded at 31 cents, only to watch it tumble to 15 cents, despite solid operational progress.
I’ll stick with iBuy for now. Its e-commerce sites in six South East Asian countries had 8.2 million subscribers at June 2014. Users spent US$71.2 million through the sites in first-half 2014. The business focuses on “flash sales”, where retailers, wholesalers and manufacturers clear excess, obsolete, out-of-season or unbranded goods in huge sales, at heavily discounted prices.
iBuy is a more substantial business than when it floated at 32 cents a share, after raising $37 million in an IPO in December 2013. It bought LivingSocial’s South East Asian operations for $20.2 million earlier this year. That business has 4.3 million users through its e-commerce sites in Thailand, Indonesia, the Philippines and Malaysia.
iBuy’s $64-million valuation could attract a suitor or strategic investors who want to get an e-commerce foothold in six South East Asian countries with a combined market of 471.8 million people, and access to a subscriber base of 8.2 million that is growing rapidly.
I’ve been wrong on iBuy so far, and as a micro-cap stock it clearly suits experienced investors who are comfortable with higher risk. But it’s hard to go past the Asian growth story, and the success of iCar and iProperty shows the long-term potential of iBuy.
Chart 2: iBuy Group
Few tech floats attracted more attention than the star provider of online micro-job lists. It soared from a 50-cent issue price in November 2013 to $2.50 on debut, after raising $15 million. Some observers credit the Freelancer IPO as sparking the resurgence in tech IPOs.
Freelancer has retreated from a short-lived 52-week high of $2.60 to 70 cents as the market makes a more sombre assessment of its prospects. Like OzForex, Freelancer has considerable strategic value from its potential to disrupt the global jobs market.
Freelancer quotes McKinsey Global Institute research that found 160 million jobs, or 11 per cent of the projected 1.46 billion service jobs worldwide, could in theory be carried out remotely, barring supply constraints.
It’s a fascinating trend. As more people in stgeloping countries access the internet, or attend university, the global pool of service workers who operate remotely will grow rapidly. Freelancer had 12.6 million registered users at July 2014 and more than 5 million projects posted in FY13. Its growth in users and projects posted has been exponential.
Freelancer’s net revenue grew from $8.5 million in the first-half of FY12 to $11.9 million in for the same period in FY13, with a gross margin of 88 per cent.
Freelancer needs to grow quickly to justify a $306-million valuation. But it could be worth many times that valuation in the next decade if it can establish the dominant global micro-jobs website.
At 70 cents, it’s an interesting idea for Self-Managed Superannuation Funds that allocate a fraction of their portfolio to small- and mid-cap stocks, are willing to hold them for 5-10 years, and can withstand share-price volatility and an inevitable disappointment or two within a larger basket of stocks.
Chart 3: Freelancer
Tony Featherstone is a former managing editor of BRW and Shares magazines. This column does not imply stock recommendations. Readers should do further research of their own or talk to their adviser before acting on themes in this article. All prices and analysis at November 4, 2014