Israeli tech cos newly listed on Wall Street are struggling

Playtika Nasdaq IPO

SentinelOne, monday.com and Global-e are flourishing but the other 17 Israeli companies are losing ground. "Globes" analyzes why.

More than 20 Israeli tech companies have begun trading on Wall Street in 2021, one of the busiest ever years for overseas listings. Half of those companies came to the NYSE and Nasdaq via the traditional Initial Public Offering IPO while the others listed through a merger with a special purpose acquisition company (SPAC) - a blank check company which raises money in order to acquire an existing company.

Almost all the Israeli companies that listed on Wall Street through SPAC mergers have posted negative returns while there have been mixed results for the companies that held a regular IPO. But overall, five months after the value of the newly listed Israeli tech companies that held an IPO hit a peak, most of them are also in negative territory.

The exception to this are the three big stars, which have shown high returns: work operating system company monday.com (Nasdaq: MNDY), which held its IPO in June and has since risen 121%; cross-border e-commerce platform Global-e (Nasdaq: GLBE), which held its IPO in May and has since climbed 111%; and cybersecurity company SentinelOne (NYSE: S), which held its IPO in June and has since risen 67%. All three companies have been previously traded at higher prices but have fallen back from their peaks. Of all the companies that listed through SPAC mergers only auto-tech company Arbe Robotics (Nasdaq: ARBE) is trading at a higher price since the merger.

The joint market cap (value) of all the Israeli tech companies that have listed on Wall Street this year, compared with the value at the time of the IPO or SPAC merger is more or less the same. But without the market caps of the three companies that have provided positive returns, then the overall value of the rest plunges.

monday.com, SentinelOne and Global-e have added an overall $18.7 billion to their market caps (monday.com $8.2 billion, SentinelOne $6.4 billion and Global-e $4.1 billion), while the 17 other companies have lost about $18.8 billion from their market caps between them.

Among the biggest losers are gaming company Playtika (Nasdaq: PLTK), which held its IPO in January 2021 at a company valuation of $11.1 billion. But weak third quarter financial results published at the beginning of November and lowering its guidance have seen the share price fall sharply, with $3.6 billion shaved off the value of its market cap since its IPO.

Playtika is something of an exception because most of the falls in value are from companies that held SPAC mergers and not IPOs. For example digital insurance company Hippo (Nasdaq: HIPO), which held its SPAC merger at a valuation of $5 billion, is now being traded at a market cap of just $2 billion. Online therapy company TalkSpace (Nasdaq: TALK), which was founded by Israelis Oren and Roni Frank, who recently left the company, has seen its market cap fall 76% since its SPAC merger. Israeli auto-tech company REE (Nasdaq: REE), has lost $1.9 billion of its value, or 62%, and app monetization company ironSource (NYSE: IS), is down by 15% or $1.7 billion since its SPAC merger was completed.

"The market was at its peak in the first half"

What has happened recently that has led to these declines and what can we expect in the future? Barclays Israel manager Ilan Paz provides separate answers for shares that reached Wall Street through a SPAC merger and those that listed via an IPO.

He said, "The stock market has been less good in the second half of 2021 than it was in the first half of the year. If you look at what has happened to the overall market to global growth companies, the reality is that the market was at its peak in February-March and since then has cooled and even gone half a step backwards in multiples. Most of the Israeli companies went on to the market in the first half of the year and they have not been immune to this, they have suffered as the entire market has suffered.'

For companies that underwent a SPAC merger, Paz identifies another trend. "There has been a total decline in the product. The funds usually make private investment in public equity (PIPE) investments, which are in fact supposed to validate the value of the company that the SPAC has agreed on. This is a market that is substantial declining. In the first half of the year, financial institutions said, 'the valuations are not right at all, we are not interested in joining.' Another interesting phenomenon is that a lot of SPAC mergers were closed with very low PIPE offerings because those who were supposed to invest in the PIPE didn't agree to the value. The result of this was that the value was cut of all the companies that went onto the market through a SPAC merger because it's a matter of supply and demand."

In other words for companies that held an IPO, the market is the reason for their weakness?

"Yes, there it is more a function of the market. The market is less good. They said that the market is still good but that's from a perspective of over the past five to ten years but compared with the start of the year, it isn't as good. The companies that went onto the market in the first half of the year are suffering."

What has caused this, the macroeconomic influence or the change in investors' preferences?

"To some extent both of them. We are definitely seeing a macroeconomic impact. We held two offerings last week from Camtek and Kornit and even though the offerings were successful we heard talk about inflation raising its head, and the serious rise in supply chain and manpower costs, and the concern that there will be an interest rate hike, which won't be good for the capital market. There is no doubt that there is more concern than there was six months ago. The second thing is related to volume. Ultimately all the pricing of the IPO is a game of supply and demand. In 2021, there was so much supply that the institutional bodies, I won't say took their foot off the gas but said 'let us take a breather before the next offerings.' This has been a crazy year."

There is demand but 2021 won't repeat itself

Some of the companies that held IPOs are now coming to the end of the six-month lock-up period, when shareholders were prevented from selling shares on the market. This also influences the shares, or is this already priced in?

"This is nothing new. This is already announced on the day of the offering and everybody knows when it will happen. There is the dynamics of the shareholders, whether to do an arranged secondary offering or everybody for themselves. But overall this is public information and the share price is meant to contain the damage."

To what extent has the strength of the shekel influenced Israeli tech companies traded on Wall Street?

"Companies are always complaining that the strong shekel is bad for them and it's true - after all some of the companies' expenses are in shekels and all the revenue is in dollars, so that's a problem. All of them are coping with a costs base that is rising above revenue. The employees of the companies, who receive options in dollars, also in practice receive less. If previously the dollar they received converted to NIS 3.80/$ today it is only NIS 3/$, so they are upset. That's the reality."

Despite all the difficult factors, there are several stocks that have sttod out since their IPO - monday.com, Global-e, and SentinelOne. How do you explain this?

"In all these companies there was reporting of financial results that were better than the analysts expected after the IPO, and forecasts that were even better. This has a very positive influence on the share."

What can we expect in your assessment in 2022? There is already a slowdown in the number of offerings and mergers by Israeli companies.

"To expect that the figures from 2021 will repeat themselves is too unrealistic, nobody expects such a thing. People are still optimistic regarding where the market is today and there is still a lot of demand from large institutions overseas for growth companies and we definitely see this. I expect that the first half of 2022 will be good, but again, it is very difficult to believe that the figures from 2021 will repeat themselves. This brings us back to the issue of macroeconomics. Inflation is already being felt and governments will need to respond. When they will raise interest rates this will immediately affect the bond and stock markets and cool the trend somewhat. The forecast from Barclays' economists is for two rate hikes during 2022."

Published by Globes, Israel business news - en.globes.co.il - on November 25, 2021.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2021.

Playtika Nasdaq IPO
Playtika Nasdaq IPO
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