Initial public offerings (IPOs) have ground to a halt…
Bloomberg reports the U.S. stock market has seen zero IPOs in 2016. Nineteen IPOs hit the market in January 2015.
The current month boasts the lowest number of new offerings since the depths of the financial crisis in December 2008.
Analysts are quick to blame the absence on volatility surrounding global equity markets.
New companies don’t want to IPO when investors are fearful… since fewer, skittish bidders will make those companies’ new share prices tank.
But regular Daily readers know there’s something else at work here…
The “death of the unicorn”
Private companies valued at over $1 billion are called “unicorns.” Forbes now lists 174 unicorns in existence.
Take “disappearing” messaging app Snapchat. The company launched in 2011. It’s never turned a profit.
It only generated revenue for the first time ($3 million) in August of last year. But that hasn’t stopped Snapchat from receiving a current $16 billion valuation.
The irrational exuberance could only go so far…
In November, Snapchat investor Fidelity marked down its stake in the company by 25%. Other unicorns Dropbox and Square also saw their valuations drop late last year.
The Full Scoop: What Congress Just Did to Social Security
Oct. 30, 2015: Congress passes Bipartisan Budget Act of 2015, including provisions aimed at eliminating “aggressive” Social Security-claiming strategies that Americans use to increase lifetime benefits.
Apr. 30, 2016: Last day to qualify and apply for certain Social Security-boosting strategies.
May 1, 2016: Window closes, and benefit-boosting strategies disappear.
January’s IPO slowdown only adds more downward pressure on the unicorns’ sky-high valuations.
Tom wrote about the impending unicorn collapse in the June 2015 issue of Tom’s Confidential:
Snapchat should be next… it only recently began earning revenue in its four-year history. CEO Evan Spiegel wants to sell before the pop. He publicly admitted so at a coding conference:
“We need to IPO… I think that people are making riskier investments… and there will be a correction.”
What does this mean?
Cracks are appearing. They’re like little tremors that early investors pay attention to.
…when companies are priced for perfection, their stocks will tumble quickly when bad news arrives. It’s a classic sign the bubble is ready to burst.
Tom recommended his TC readers buy a portfolio of put options against some of the other young media darlings of Silicon Valley… former unicorns that had all made recent IPOs.
Subscribers who took his advice booked gains of 95% in Twitter, 97% in Pandora, and 221% in Yelp. Last week, they closed out two more positions for 31.5% (LinkedIn) and 15% (Workday) gains.
The portfolio still holds one position profiting from the “death of the unicorn.” All Tom’s Confidential subscribers can click here to review it.