Stock market bears have apparently taken a dislike to the so-called unicorns.
According to financial information group Markit, short selling in these newly listed tech giants has surged.
Whilst tech stocks have been among the favourite targets of shorters, it says the short interest in this unicorn grouping has increased particularly, by 62%, and it now accounts for around 6.3% of the free float of shares in those companies.
“Scepticism towards recent IPO listings is fairly universal given that short interest in the 200 US traded firms which have listed since January 2013 with a market value greater than $1bn has surged to new highs in recent weeks,” Markit said in a report.
Unicorn is the name used by Silicon Valley types to describe tech start-ups valued at more than a billion dollars.
The tag speaks to the supposed mythical existence of such creatures, but, given the lofty valuations achieved for tech floats in recent years there are actually plenty of unicorns about.
Tinder owner Match Group (NASDAQ:MTCH) and Jack Dorsey’s Square Inc (NYSE:SQ) this week became the latest additions to the ‘unicorn club’ as their respective IPOs valued the companies at US$4.2bn and US$2.9bn.
Closer inspection of Square’s funding does in itself highlight the problems valuing early stage tech companies. For many of these companies the financial forecasts are ever moving targets and relatively small ‘pre-money’ funding can extrapolate to hefty valuations.
Raising US$243mln (less than anticipated) with an IPO price of U$9 per share Square entered Wall Street with a US$2.9bn market worth, however, its most recent pre-IPO funding round last October pointed to a value of around US$6bn.
Nevertheless, despite the lacklustre funding, Thursday’s debut on the NYSE saw Square soar as much as 64% before ending the session at US$13.07, 45% above the IPO price.
Turn now to Twitter, without tacitly picking on Dorsey (the companies’ common chief executive), which tells another story of the mainstream equity market placing more scrutiny on prices compared to Silicon Valley investors.
Twitter earlier this month fell to US$25.18 per share, having dropped from as high as US$53.49 earlier this year.
When Twitter raced to a 75% day-one premium it was one of the first and most well-known ‘unicorns’.
But, with last week’s pull back it was below its November 2013 IPO price of US$26.
Markit describes the decline of Twitter’s share price as “a stunning reversal of fortunes” and highlighted that short sellers had been “omnipresent” throughout the downturn.
Most notably, Markit highlights that short interest in wearable tech group Fitbit, which raised over US$700mln and floated with a US$4.1bn valuation in June, is now seen as the biggest target for the shorters – according to Markit some 42% of its free float out on loan.
“Performance wise, these firms have proven to something of a disappointment given that these shares have returned 2.7% on average.
“Half the recent listings are now seeing their shares trade at a lower price than the closing price on their first day of trading.”