April 17, 2014 / 6:50 PM / 5 years ago

IPOVIEW-U.S. IPO market loses shine as investors turn picky

April 17 (Reuters) - Companies looking to go public in the United States will have to temper their expectations as investors begin to question valuations in a crowded market.

The next few weeks will be closely watched as the market prepares for the listing of Chinese e-commerce giant Alibaba IPO-ALIB.N, which is expected to file for its offering as early as Monday.

More than half of the 25 companies that have gone public this month have priced their offerings below the expected range. This is the second highest since June 1998, according to Thomson Reuters data.

In contrast, out of the 29 IPOs in March, only two were priced below their expected range, while five were priced above.

Bankers have responded by pricing the IPOs lower and also offering fewer shares to sustain the demand.

“The underwriters realize that they have a cash cow and what they have been doing is reacting swiftly and specifically about cutting the valuation of these companies to keep the train on the tracks,” said David Menlow, president of IPO research firm IPO Financial Network.

Sabre Corp, the airline ticketing technology provider that also owns online travel agency Travelocity, sold fewer shares than expected and priced them below the targeted range. The company’s shares rose as much as 7 percent in their market debut.

Weibo Corp, the owner of a Chinese Twitter-like messaging service, priced the offering at the low-end of its target range. The company’s shares soared 44 percent in their debut on Thursday.

The recent pullback in U.S. stocks, especially those of high-flying technology and biotechnology companies, has taken a toll on the IPO market, which got off to a strong start in the first quarter of the year.

U.S. IPOs raised more than $18 billion in the first three months of the year, making it the best quarter in more than a decade. Technology companies raised about $4 billion, compared with $1 billion a year earlier.

“The market has stumbled very decidedly because of the recent deals... King Digital and La Quinta were a huge disappointment for the marketplace and caused everyone to start to realize that maybe things had topped out,” said Menlow.

Shares of “Candy Crush Saga” game maker King Digital Entertainment Plc are down 20 percent since their debut last month, while those of Blackstone-backed hotel chain La Quinta Holdings Inc have hovered around their offer price of $17.

The tech-heavy Nasdaq Composite index is down about 6.5 percent since its March 6 high, and recorded its biggest one-day drop in 2-1/2 years last week.

The benchmark S&P 500 index is also down about 2 percent through Wednesday’s close, since hitting a life-high of 1,897.28 on April 4.

All this is expected to cast a shadow on Alibaba’s eagerly awaited IPO, which is set to be the largest since Facebook Inc’s $16 billion offering in 2012.

“It would mean that the Alibaba IPO needs to come substantially cheaper than everybody thinks out there,” said Josef Schuster, founder of IPOX Schuster, a Chicago-based IPO research and investment house.

“Nobody is going to give Alibaba the valuation it would have gotten probably 4 or 5 weeks ago.”

Additional reporting by Tanya Agrawal; Editing by Sriraj Kalluvila

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