Sunday, March 18, 2018

Record Muppet Show

Wall Street's mantra is never let a manic melt-up go to waste...

This past Friday saw the first tech unicorn - Zscaler - to go public in 2018. It was up over 100% in one day. This coming week will be the main event: Dropbox. Wall Street is flooding the market with junk before the "window" of opportunity closes. But don't take my word for it...

"The share of loss-makers in the IPO market has been rising. Last year, it reached the highest percentage [75%] since the peak of the dot-com boom in 2000. By contrast, data spanning nearly four decades shows 38% of companies are typically unprofitable when they go public."

“Certainly, this is the sort of thing you typically see toward the end of a market cycle.”

I noticed that the IPO ETF has been well bid throughout this "correction", ensuring fertile soil for the upcoming pump and dumps:

I also noticed that Snapchat, last year's biggest mega flop peaked twice with the market - last year AND this year:

Of the largest tech IPOS of 2017 - Snapchat, Blue Apron, Switch, Roku, Altus Networks - all are down from their first day except Roku (red) which is now imploding...

"Another reason for the drop in profitability among newly public companies is that nearly 30% are biotechnology firms...When they go public, they typically aren’t generating much revenue. The median sales among the 32 biotech companies that went public last year was less than $1 million"

Equal weight Biotech:

In summary, record inflows to stocks overall and tech, are being put to good use in junk tech IPOs...

Bonus chart

The World Leaders Index comprises the 200 largest cap stocks in the world, including the U.S. And as we see, it's not heavily weighted to technology: