Analysis
Israeli companies flocking to Nasdaq in numbers not seen since dot-com bubble
High demand for tech shares due to the accelerated digital transformation of the past year and the lack of M&A deals has resulted in more and more Israeli unicorns targeting a U.S. IPO
13:5728.12.20
The ever-growing list of Israeli tech companies targeting a Nasdaq IPO in the coming months is closing on double figures, with eToro becoming
the latest, and probably not the last to join. This multitude of companies, the likes of which hasn't been seen since 2000, when at times, five and even seven Israeli companies would go public each day, is the result of two factors. The first is high demand for tech shares due to the accelerated digital transformation of the past year and the second being the almost complete lack of M&A deals due to the dramatic decrease in travel which complicated due diligence and integration processes. During this time, companies have continued to grow and receive generous funding from private investors which has allowed them to join the unicorn club, which in this day and age is essentially the minimum threshold to go public on Nasdaq.
Nasdaq. Photo: Getty
Over the past three years, there has been an awakening in the IPO sector after years in which companies preferred to first try and obtain private funding. This created a new reality in which private companies reached dimensions previously unseen and are in no rush to go public. But the investing public is hungry for these companies, which is evident in the sharp increase in the shares of tech companies during their first day of trading.
It started with a trickle in 2018 and 2019, with IPOs of companies like Uber, Lyft, Beyond Meat, Zoom and Slack, but peaked in 2020 when the average surge on the opening day of trading reached 40%. Companies like eToro and Robinhood are about to enjoy a phenomenon which they helped create in which young investors want to have a share in companies which sell products they use every day.
Nasdaq. Photo: Getty This is also where the significant difference between now and 20 years ago rest. In the year 2000, business models weren't structured enough and everything was based on fantasy rather than vision. Currently, the most sought-after shares in Robinhood are those which represent the digital economy that investors interact with on a daily basis, when using a cab, renting a home for a vacation, or buying a vegan hamburger.
Older investors are more skeptical because they remember 2000, but also because the number of companies embarking on an IPO despite not being profitable is at a high not seen since that traumatic year. In addition, they also believe that the high valuations are sometimes being created by a market distortion. This distortion is the result of companies going public with the accelerated growth stages already behind them and when they are already flush with private funds, which means they only sell a relatively small amount of shares on the market. This creates demand that doesn't match the supply and results in a sharp increase in the price of the shares when they hit the market.
However, as always, the skeptics are drowned out by the noise of the excitement. After all, according to Google Trends, the number of searches for IPO is also at a 16-year high.
