Following is the latest edition of Pursuit News to Use relative to the financial, technology and media sectors.
The spring thaw is in full swing and the U.S. economy is warming up as well with inflation concerns receding and a potential pause in Fed rate rises. Results are expected to start showing up in technology and media companies’ bottom lines after rounds of layoffs. Investments are following suit on expectations for profitability. Attention is now turning towards the relatively moribund IPO markets as companies seek exits on potentially better valuations.
Capital Markets
Asia
China’s IPO market is booming as recession fears disappear and a regulatory crackdown on tech appears to be easing. There has been a resurgence of investor interest as reforms have eased listing requirements and companies aim to raise capital through public listings.
Hong Kong, Shenzhen, and Shanghai exchanges are expecting a surge as several tech giants prepare to capitalize on spin-outs of their well performing business units. This could mark the beginning of a resurgence in international interest for Chinese firms that have emerged stronger after lengthy Covid-era lockdowns.
Alibaba is planning to split its $220 billion business into six stand-alone companies while potentially listing several of its newly independent business entities. The move is expected to generate strong demand for shares in potentially highly profitable businesses. Rival JD is also spinning out its property and industrial units according to the WSJ.
Investors are enthusiastic about these types of spin-offs considering their historically strong track record. Successful exits could boost Hong Kong IPO listings which languished last year, falling two-thirds in value.
United States
IPOs in the U.S., especially in the tech sector, are also potentially warming up, despite continued recession warnings. Expectations for a one more Fed rate rise this year and then a pause for the rest of 2023 is breathing new life into markets.
Banking crisis concerns have also faded as assets from failed institutions are being snapped up by stronger rivals. Since wider financial system contagion has been avoided, markets are responding strongly with an uptick in investor interest in a potential backlog of public listings.
President Biden declared 'the banking system is safe' shortly after Silicon Valley Bank collapsed.
A month later, First Citizens, a 125 year old firm with more than $218 billion in assets acquired a large portion of the former tech start-up financial firm’s assets.
All eyes are on whether tech companies will now pursue IPOs after markets effectively seized up. Firms including Instacart, which canceled its 2022 listing, Reddit, Stripe and Discord are all being viewed for potential 2023 offerings.
Wedbush is also predicting that as consumer spending slows, tech M&A activity will pick up and firms may look to make quick IPOs amidst a tighter financing environment.
Goldman Sachs’ Clif Marriott is looking a little further out, with 2024 as a “big year” for tech IPOs, specifically European companies.
Technology and Media
The media sector continues to evolve along with customer preferences, including more streaming options, especially for sports. Market consolidation and even a return to theaters are emerging trends for the rest of the year.
Improving financials are also becoming a priority among legacy media titans and new industry leaders. Cost cutting via layoffs, restructuring, and even some slowing of new releases should improve bottom lines. Tough competition and belt tightening isn’t stopping new entrants from entering the increasingly crowded streaming space, however, or holding back Apple’s movie plans.
Comcast and Disney expect peak losses sometime this year while Paramount Global says it has maxed out on investment, adding to market expectations for improving profits.
Netflix is restructuring their film division, merging small and mid-budget production and cutting back on its one-movie-a-week release schedule of the past two years. HBOMax is also consolidating into the singular MAX.
Apple, on the other hand, is plunging ahead with a reported $1B a year budget for new movie releases, in theaters. That gave a nice bump to Cinemark, IMAX, and AMC shares.
Back in the streaming world YES Network is launching a streaming service for non-cable viewers that will give access to NY Yankees games, bars and restaurants will have access to Sunday Ticket games in an NFL/Redbird tie up, and the WWE and UFC may be pursuing a streaming deal.