According to Renaissance Capital, the majority of recent IPO returns have come from the first day rather than the aftermarket gains, which are defined as the return from the end of the first through the market close on June 24 last week.
The overrepresentation of the first-day pop for total gains can be problematic for retail investors because a significant portion of that initial jump occurs between when the deal is priced and when the stock begins trading, implying that gain is captured by institutional investors who purchased shares directly from the banks brokering the IPO.
With that in mind, retail investors have been underwhelmed by this year’s issuances, with a negative aftermarket return for first-quarter entries and only a marginally positive one for second-quarter entries.
“IPOs produced a 34% average return and a 21% median return from offer,” Renaissance reported for the third quarter. “With the exception of two high-flying micro-caps, the average IPO gained 24 percent on the first day and returned 26 percent from the offer.” As trading in the aftermarket was roughly flat, returns were driven by strong first-day gains. Two-thirds of IPOs finished above their initial public offering price.”
There are a number of reasons why IPO returns may be low this year.
For one thing, there has been a lot of competition for investor dollars, with a high level of new entrants, a record number of special purpose acquisition vehicles launched in the first quarter, high-profile direct listings, and steady sales of new shares from already public companies.
JJ Kinahan, chief market strategist at TD Ameritrade, believes that some of the poor performance could be attributed to the nature of newly public companies and a lack of well-known brands.
“We just haven’t had those one or two stocks in which everyone feels compelled to invest. We’ve certainly had that in previous years, where it’s like, ‘Oh my god, how could I not buy X company, I use the product every day,'” Kinahan said. “We’ve had a lot of IPOs, but I don’t know if they are the Twitters, Facebooks, and so on, where everyone feels compelled to participate.”
The strategist went on to say that the success of the broader market and the most well-known companies may be discouraging investors from taking a chance on a new entrant.
Some companies are looking for ways to avoid the traditional IPO structure and allow retail investors to purchase shares at the issue price. For example, Robinhood, which filed for IPO on Thursday, intends to sell some of its stock directly to retail users through its trading platform.
Wood added 985,579 Kanzhun shares to the ARK Next Generation Internet ETF and the ARK Autonomous Technology and Robotics ETF over the last two weeks, including daily additions this week.
Her position, which she purchased on June 21, is now worth approximately $38 million, based on the stock’s closing price on Thursday.
On Wednesday, Ark Invest’s CEO and Chief Investment Officer purchased 481,408 shares of the artificial intelligence-driven job-finding app.
Kanzhun, which trades under the ticker “BZ,” now accounts for approximately 0.4 percent of the ARK Next Generation Internet ETF and approximately 0.54 percent of the ARK Autonomous Technology and Robotics ETF.
Kanzhun, which went public on June 11, gained up to 96 percent on its first day of trading, opening around $37 per share after pricing between $17 and $19 per share. The Tencent-backed company operates an online recruitment platform that connects job seekers and enterprise users via the Boss Zhipin mobile app.
According to the company’s S1 prospectus filed with the SEC, Kanzhun’s vision is to “redefine every individual’s career development with technology and a passion towards delivering user satisfaction, by optimizing efficiency, equality, and choice.”
Kanzhun is a Chinese word that means “aim right.”
Wood has made a name for herself by investing in companies that engage in “disruptive innovation.” According to FactSet, the firm’s flagship fund, Ark Innovation, has seen nearly $16 billion poured into it in the last year. Wood frequently promotes companies that use disruptive technology to change the way the world works.
Kanzhun’s stock has fallen slightly since its initial public offering. The Chinese firm is worth nearly $16 billion on the market.