IPOs: Biotech Listing Pops, E-Commerce Flops, Fintech to Come

Bottom line: A flurry of IPOs for offshore Chinese tech firms marks the start of an upcycle following a three year lull, with fintechs likely to be the top stars.

After a relatively boring first eight months of the year, the IPO market has suddenly come to life with a flurry of offerings that are turning in a mixed performance. E-commerce seems to be a bit passe, though you would never guess that based on the recent run-up in the stock of sector lead Alibaba’s (NYSE: BABA) stock. Meantime, a small-ish biotech offering has wowed investors, and the best looks set to come with a couple of fintech offerings this week and towards the middle of October.

This particular spurt looks at least partly tied to the Chinese National Day holiday that will see the entire country basically close for all of next week, prompting companies that have been waiting to list to speed up the process to finish beforehand. Last week we saw logistics specialist Best Inc (NYSE: BSTI) deliver an offering to tepid response, followed by a much better result for money-losing biotech start up Zai Lab (Nasdaq: ZLAB). The week ended with a fizzle for luxury e-commerce firm Secoo on the Nasdaq. This week before the holiday, we could see debuts for the year’s first $1 billion-plus offerings from fintech firm ZhongAn Insurance. That should be followed by another fintech mega-deal by Qudian in mid-October .

The IPO business tends to be cyclical, and in this case we’re seeing the first major upcycle in about three years. The last time this happened was 2014, in a flurry of deals that saw e-commerce giants Alibaba and JD.com (Nasdaq: JD) both list, as well as Weibo (Nasdaq: WB), often called the Twitter of China, among others. So it’s probably not too surprising that this new wave is coming, since three years is about as long as these things usually go.

Let’s begin with a recap of last week, and finish with a look at what’s likely to come with the two mega offerings in the weeks ahead. Last week began with a big disappointment for Best Inc., the logistics firm backed by Alibaba. That listing shrunk to about half of its original plan due to lack of interest, then priced at the very bottom of its range before finally managing a 5 percent rise in its debut. (previous post)

Since then it has continued to rise and is now about 20 percent above its offering price, including a 10 percent gain on Friday. Still, I would call this a dead-cat bounce, since the stock really had no place else to go but up after expectations and actual targets were lowered so much. The theme seems to be that logistics isn’t too attractive right now due to cutthroat competition, and the fact that Best is losing money probably didn’t help.

Languishing Luxury

Logistics is closely tied to e-commerce, which perhaps partly explains why another IPO that debuted on Friday from luxury e-commerce platform Secoo also did quite poorly. That one managed to raise $110 million, before plummeting 23 percent in its trading debut. (Chinese article) I’m not familiar with this company, but apparently it just turned profitable in the first half of this year after losing money for the past two years. Perhaps investors don’t believe the profitability part, or perhaps there’s just not much appetite for second-tier e-commerce firms due to the dominance of Alibaba and JD.com.

Then there was the surprise hit IPO from Zai Lab, a biopharma company that’s only three years old and has yet to post any sales. Despite that shortcoming, investors bid up the stock more than 50 percent in its debut, after the company raised about $100 million in its IPO. (English article) Since then the stock has managed to keep most of the gains despite some unsurprising volatility, and is still 54 percent ahead of its IPO price.

Last but not least there are ZhongAn, an online-only insurance company, and Qudian, an online consumer microlender, both of which look set to launch their IPOs this week and shortly after the National Day break. I’m fairly certain both deals should get a pretty positive reception, based on various signals we’ve seen coming from each plan. That means both are likely to raise more than $1 billion, and I would expect each to price close to the top of their range and probably debut with modest gains in the 5-10 percent range.