IPO’s by Twitter and Facebook have been some of the biggest anywhere in the world in recent years. Alongside these two U.S. based social media giants, Weibo, China’s Twitter/Facebook hybrid, and longer ago Netflix in the technology sector have also been the subject of large IPO’s.
One thing these businesses have had in common, along with many in the social media and technology sectors that are publicly traded, is exposure to volatile market conditions and, as a result, an uncertain financial situation.
However, it appears that there may be a brighter outlook on the horizon, at least if the early trading patterns of this week are anything to go by. The Financial Times is reporting that all of these companies, as well as Trip Advisor, have started the week with “a rebound” following 10 weeks of highly volatile price swings.
Weibo appeared to be the company to enjoy the largest boost, thanks largely to an optimistic overview of Weibo’s prospects, which was provided by Minneapolis headquartered investment bank Piper Jaffray.
Gene Munster, renowned marketplace and industry analyst and Piper Jaffray employee, told the FT, “It is the best pure play social networking platform in China. At current levels, Weibo shares trade at a slight discount to the company’s peer group and…we believe that Weibo deserves to trade at a premium multiple to the group given our expectation for higher growth.” Munster’s optimism was based on Weibo’s market positioning.
The company is well set in China within the small and medium sized businesses markets, and this is likely to be where most of Weibo’s growth opportunities will come from in the future.
Citigroup had previously warned that overall first quarter earnings trends would bring “growth into question” for Weibo and other small to mid-cap stocks, and while the first quarter may show underwhelming results, there is hope for the rest of 2014.
Overall, Weibo, who launched on the NASDAQ exchange on April 17, 2014, saw its shares rise by 9.3% to $19.52. Facebook, Twitter, Netflix and Trip Advisor all saw price rises from 4.5% – 6%.
Whether this bounce in the technology sector is sustainable or is simply the result of the comments from Munster and others in the industry remains to be seen, but there is no doubt that private equity will be keeping a close eye on this performance.
How industries and companies perform in the public markets is usually a reliable indicator of how the same industry will fare from a deal flow perspective in the private equity marketplace. Although there are no notable IPO’s upcoming from private equity houses that are looking to exit technology investments, the tech industry is a common target for private equity with an IPO exit often being the long-term strategy even when opportunities are being sought.
The most likely scenario appears to be that the tech sector in general will continue to be volatile, although the blue chip names in the industry could well see their own performance stabilising in comparison to the smaller publicly traded companies in the sector.