Nasdaq Rout Curbs 2000-Like Boom in Israeli Share SalesGabrielle Coppola
The selloff in Internet and biotechnology shares is threatening to cut short the fastest start to Israeli stock offerings in overseas markets since 2000.
Wix.com Ltd., the provider of online tools to create websites, scrapped a share sale on March 31 after the stock tumbled 26 percent that month, paring the rally since its Nov. 5 initial public offering to 39 percent. On April 4, Matomy Media Group Ltd., an online marketing company based in Tel Aviv, scuttled plans for an initial public offering in London.
Technology shares are slumping across the globe, led by a 7.4 percent plunge in the Nasdaq Composite Index from a 14-year high reached in March, amid concern valuations had reached unwarranted levels. The rout is being felt acutely in Israel, which has 64 companies traded on the Nasdaq, the most of any country outside the U.S. after China.
“The market has become more sensitive to risk for foreign deals,” Josef Schuster, founder of Chicago-based IPOX Schuster LLC, said in an April 10 telephone interview. “Corporate actions are not going to be as easy as they used to be.”
With stock trading slowing in Tel Aviv, Israeli companies have been turning increasingly to international markets for funding. Twelve Israeli companies raised $625 million selling shares in New York and London this year, three times the amount raised in the year-earlier period, according to data compiled by Bloomberg.
That’s the most since 2000, when nine companies raised $893 million before the so-called dot-com bubble burst, wiping out $1.7 trillion in market value on the Standard & Poor’s 500 Index from a September high to year-end.
Matomy, which helps publishers and app developers increase web traffic, decided to postpone its London IPO because there wasn’t enough interest from European investors, Chief Executive Officer Ofer Druker told Bloomberg in an April 8 interview.
“People lost their appetite to invest in companies that are in the field of the Internet,” Druker said. “The markets around us in the Internet sectors and also the shares of our peers went down very heavily.”
The postponement was a “technical setback” and won’t stop the company from pursuing its ambitions, Druker said in an e-mailed response to questions yesterday.
Wix.com, whose $127 million U.S. IPO last November was the largest out of Israel in six years, has seen its shares drop 32 percent from a peak of $31.32 on Feb. 27 to $21.21 yesterday. Wix, based in Tel Aviv, was undone by the market rout, and “fundamentally nothing has changed” for the company, Kerry Rice, an analyst with Needham & Co. Inc. in San Francisco, said in an April 14 telephone interview.
Eric Mason, a press official for Wix.com in San Francisco, declined to comment.
The Nasdaq gauge, which counts 601 technology companies among its 2,501 members, has slumped 3.9 percent this month, heading for the worst performance since October 2012. Amazon.com Inc., the world’s largest online retailer, and Facebook Inc., which traded at more than 100 times reported earnings at the beginning of April, have tumbled 17 percent and 15 percent respectively since mid-March.
Investors are concerned that much of the Nasdaq’s 38 percent rally last year was driven by stock buybacks instead of earnings growth as the Federal Reserve’s asset purchase program flooded the U.S. economy with cash, said William Scholes, a portfolio manager at Aberdeen Asset Management Plc in London who decided to pass on the Matomy IPO offering.
“A lot of excess liquidity and rich valuations means that the likelihood of misinvestment is high,” Scholes, who helps oversee $58.7 billion in emerging-market equities at Aberdeen, said in an April 14 telephone interview.
Matomy’s strategy of growing through acquisitions is a concern because of the high valuations of potential tech targets, Scholes said. It acquired Florida-based MobAff in July and Israeli ad company Adquant’s social advertising agency in October. “It’s going to be even harder for them to buy companies of greater scale and buy them attractively,” Scholes said.
No Israeli company has chosen the Tel-Aviv Stock Exchange as its primary exchange for an initial public offering since the June debut of Kadimastem Ltd., a biotechnology group with a market value of less than $15 million, according to data compiled by Bloomberg.
International investors began shunning local Israeli stocks after May 2010, when MSCI Inc. pulled the country out of its emerging-market gauge and placed it in its developed markets index. Trading on the exchange plunged 44 percent in the first two years after the reclassification, according to Bank of Israel data.
The benchmark TA-25 index closed 0.3 percent higher today, bringing its 12-month gain to 15 percent. The Bloomberg Israel-US Equity index of dual-listed companies rose 0.6 percent to 115.12 at 2:06 p.m. in New York.
As Israeli biotech companies have slumped, investors pulled a record $372 million from the iShares Nasdaq Biotechnology ETF on April 4, the most since the fund’s 2001 inception.
Half of the 12 Israeli companies to sell shares abroad this year have been biotechnology firms. All of them have since dropped in value, led by specialty chemical maker Enzymotec Ltd, which lost 25 percent since its share sale on Feb. 13.
“Risk has been misjudged and now the pendulum swings back and you get better risk assessment,” said IPOX’s Schuster. “The market is much more sensitive.”