Where did $23b go? NY falls hit Israeli newbies hard

SentinelOne IPO  credit: PR

The steepest declines among the "2021 vintage" are in companies that went public through SPACs.

January, so far, has been a tough month for technology stocks on Wall Street. The Nasdaq index is down 14.3% from its peak, and has fallen 12% in the first three weeks of January. The trend of a switch from growth stocks to value stocks, against a background of expectations of a rise in interest rates, has hit most of the Israeli companies that were floated on Wall Street during the boom period of 2021 very hard.

The returns on Israeli stocks "vintage 2021" on Wall Street present a grim picture. There are 22 such companies, which were worth an aggregate $77 billion when they were floated or merged into SPACs; their aggregate value today is a little under $59 billion. That is to say, in a period of less than a year they have wiped out $18 billion of investors' money.

In fact, if we omit Zim Integrated Shipping Services Ltd. (NYSE: ZIM), whose share price has shot up by almost 300% since it was floated a year ago, and leave just the technology companies, the situation is even more dire: $23 billion wiped off their stocks, representing 30% of their valuations when they were floated or merged into SPACs.

Half the Israeli technology companies that began to be traded on Wall Street in 2021 came to the market through IPOs; the remainder did so via SPACs, companies with no activity other than to raise money to buy an existing company with an active business, which was a hot trend in the first half of last year.

For these latter companies, the situation was bad from the start. By mid-2021, the enthusiasm for the SPAC device waned, and investors tended to "punish" companies that reached the stock market that way, because they reckoned that in the period of SPAC hype up to mid-2021, such companies had been overvalued. The market caps of Israeli companies that merged with SPACs last year therefore fell more sharply, and they wiped out $18.5 billion in value.

Still positive returns, but far from the peak

Among the Israeli technology companies that became listed through IPOs (and lost an aggregate $4.5 billion in value), a few still show positive returns for investors since their flotations. All of them, however, are well down from the peaks they reached in the first few months after they went public.

Take for example cybersecurity company SentinelOne, Inc. (NYSE: S). Its share price soared from $35 in its IPO at the end of last June to over $76 in November, and is now at $40, which does give a positive return of 14.6% since the IPO, but is 47% below the peak.

For a while, SentinelOne's market cap was higher than that of veteran Israeli cybersecurity company Check Point (Nasdaq: CHKP), despite the company not being profitable, while Check Point very much is, although SentinelOne is growing much faster. The change in investor taste, however, and the fading allure of companies that are not making profits, even if they are growing rapidly, has led to a current situation in which Check Point's market cap, at $16.6 billion, is $5.9 billion higher than that of SentinelOne.

The share price of Global-e Online Ltd. (Nasdaq: GLBE), which provides solutions for cross-border e-commerce, exhibits a similar trend. The company was floated at $25 per share, reached nearly $82 at the peak, and is now traded at $32.8 per share, giving it a market cap of $4.8 billion.

Monday.com (Nasdaq: MNDY), which has developed a work operating system, rose from an IPO price of $155 to $445 at the peak, and fell back to $199, giving a market cap of $8.7 billion. And these are the positive examples, with positive returns since the companies were listed.

Falls of up to 71% from flotation price

The rest of the stocks have posted declines of 29-71% since they were listed, and of 42-83 % since their peaks. E-commerce risk management platform Riskified (NYSE: RSKD), for example, was floated at a share price of $21, jumped to $37, and is now at just $6.2, giving a market cap of just over $1 billion.

It can be assumed that the altered market trend will make it difficult for Israeli technology companies to go public on Wall Street in 2022. The second half of 2021 already saw a degree of slowdown in the number of Wall Street flotations, after a record second quarter.

Among Israeli companies, the last three flotations, of Outbrain (Nasdaq: OB), Kaltura (Nasdaq: KLTR), and Riskified, took place in July 2021, meaning that no flotation of an Israeli company has taken place on Wall Street for six months. The IPO window has presumably not shut completely, but growth companies that are not profitable can, for the time being, only dream of the generous multiples of 2021.

SPAC mergers punished

Among the companies that were merged into SPACs last year, the largest drop in value in dollar terms is that of ironSource Ltd. (NYSE: IS), which operates a business platform for app developers and telecom operators. The company's SPAC merger was also the largest among those of Israeli companies last year. ironSource was acquired by a SPAC at a valuation of $11.1 billion. The company is now traded at a market cap of $6.2 billion, representing a decline of $4.9 billion.

Digital insurance company Hippo Holdings Inc. (NYSE: HIPO), which was valued at $5 billion for the purposes of its merger, is now traded at a market cap of under $1.2 billion, representing a decline of $3.8 billion.

The biggest decline in value in percentage terms is that of Talkspace, Inc. (Nasdaq: TALK), which provides online psychiatric care. Its market cap is down 84% on its SPAC merger valuation, losing its investors almost $1.2 billion. The company now has a market cap of just $222 million, not far from the total of its cash. Two months ago, the company's founders, Oren and Roni Frank, stepped down from their management roles in it, and the CEO of the SPAC that acquired Talkspace has become its temporary CEO until a new permanent CEO is found.

Three Israeli companies are currently in the process of becoming listed in New York via SPAC mergers, and it will be interesting to see whether these moves will go ahead given the plunge in technology stock prices. Social trading platform eToro, has already announced a 15% cut in its merger valuation, after many delays in completing it. Fintech company Pagaya, on the other hand, has announced an increase in the amount it will raise and has confirmed its SPAC merger valuation. The third company waiting to complete a SPAC merger is Selina, which is not a technology company but a hospitality brand operating a chain of hostels in Israel and other countries.

Published by Globes, Israel business news - en.globes.co.il - on January 24, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

SentinelOne IPO  credit: PR
SentinelOne IPO credit: PR
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