Elliott Wave 2016 Outlook

Elliot Wave International released their 2016 State of Global Markets

On the initial public offerings market:

Bloomberg IPO Index

The long term chart of the Bloomberg IPO Index shows the reversal in the IPO aftermarket that followed each speculative episode. Interestingly, the peaks are exactly 7.38 years from each other, creating a long-term cycle top that is now behind us. One by one, numerous highly celebrated offerings have gone off the rails. Since September 2014, more than half of the 35 companies that went public with initial valuations of more than $1 billion are now below their IPO price.

That said, more than half of the 35 companies who have fallen below their IPO price are technology firms. For example, stock prices of Alibaba, Twitter, Zynga and Groupon have fallen well below their IPO price.

Let’s do a quick summary of these four companies and their stock price performance (displayed ‘graphically’) starting from the bottom and now we here:

Groupon

Taken public in November 2011 at $20, another round of shares were then issued in January 2014 at $11.80. As of yesterday’s close at $4.14, market stands at $2.43 billion, and a P/E ratio of 37.64. Similar to ownership composition in Hong Kong, 23.49% of shares are held by Insiders: Eric Lefkofsky (17.57%). But other shareholders include Fidelity Investments (15.70%) and Alibaba (5.64%).

GRPN Stock Price

sg201602263142

Zynga

Taken public in December 2011 at a subscription of $10, but then issued another round at $12 in March 2012. As of yesterday’s close at $2.14, market cap stands at $1.85 billion, and a P/E ratio of  N/A given recent EPS of $-0.13. In contrast to Groupon, only 1.09% of Insiders own shares. The largest shareholders are Capital Group Companies (11.51%) and Eminence Capital (10.45%).

If Capital Group ‘claim’ to be one of the oldest and largest investment management ($1.147 trillion AUM) in the world, have they found a value play?

ZNGA Stock Price

sg201602263248

Twitter

Taken public in November 2013 at $26, shares have taken a sharp turn downwards. As of yesterday’s close at $17.59, market cap stands at $12 billion, and a P/E ratio of N/A given most recent EPS was $-0.86. Analysts compiled by Bloomberg estimate a 2016 P/E ratio of 31.87. The shares have traded between a high of $53.49 and a low of $13.91. A paltry 11.09% of shares are held by Insiders, with Twitter cofounder, Williams Evan, holding 6.33%. Interestingly, Steve Ballmer, former CEO at Microsoft, has been accumulating a stake in Twitter worth 4.10%. Perhaps the most interesting ownership stake is that of Prince Alwaleed bin Talal who holds 5.12%. In addition to the Prince’s stake in Twitter, he also holds a stake in Citigroup and Four Seasons, of which valuations have dropped significantly for the both them.

Those who track the large stake BVS take in companies should note their combined stake in TWTR is 8.85%: Blackrock (4.10%), Vanguard (3.42%), State Street (1.33%).

TWTR Stock Price

sg201602263314

Alibaba

Taken public at $68 in September 2014, shares quickly rose to a high of $119.15 on 10 November, 2014 before falling to yesterday’s close of $66.66. Market cap stands at $166 billion with a P/E ratio of 17.22 given recent EPS of $3.87. Most notably and perhaps least surprisingly, largest shareholder of BABA is Temasek Holding with 1.98%, ’nuff said.

A brief extract from BABA IPO Prospectus on the listing of its SPV as an ADR:

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, or the MOFCOM, the State-Owned Assets Supervision and Administration Commission, or the SASAC, the State Administration of Taxation, the SAIC, the China Securities Regulatory Commission, or the CSRC, and the State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which came into effect on September 8, 2006 and were amended on June 22, 2009. The M&A Rules include, among other things, provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. However, substantial uncertainty remains regarding the scope and applicability of the M&A Rules to offshore special purpose vehicles.

BABA Stock Price

sg201602263380

BABA Ownership Breakdown

sg201602263576

BABA Top Ownership Holders

sg201602263493

Given the superficial summary of these four companies, let’s explore whether was Aswath Damodaran correct about the Pricing Game vs. the Value Game later on.

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