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Israeli Companies Flocking to Nasdaq in Huge Numbers

Dec 27, 2020
Israeli Companies Flocking to Nasdaq in Huge Numbers

The list of Israeli tech firms that are targeting a NASDAQ IPO in the next few months appears to be ever-growing, as it has come close to double figures. The latest company to join this list is eToro, which is probably not the last one. The likes of such a multitude of companies has not been seen since the 2000s, when five and even seven Israeli companies had gone public in a day because of the dot-com bubble. However, this new increase is likely because of two factors. First and foremost, there is an increasing demand for tech shares because the past year has seen accelerated digital transformation. 

The second is the nearly complete lack of M&A deals because of the dramatic drop in travel, which complicated integration and due diligence processes. During this time, firms have continued their growth and have received funding from private investors, which has enabled them to join the unicorn club. In this day and age, this is essentially the minimum threshold for going public on Nasdaq. In the last three years, the IPO sector has seen an awakening after a long time in which companies first prefer to try and obtain private funding. 

This led to a new reality where private companies were able to reach dimensions that were never seen before, and so, they were not in any rush to go public. However, the investing public appears to be quite hungry for such companies, which is obvious from the major jump in the shares of tech firms in the first day of trading. It had begun with a trickle in 2018 and 2019, as companies like Beyond Meat, Uber, Zoom, Lyft, and Slack had conducted their IPOs. However, it really peaked in 2020 when the opening day surgeon average had reached 40%. 

Companies like Robinhood and eToro are preparing to enjoy a phenomenon that they had helped in creating. This involved young investors wanting to have shares in companies selling products they use on a daily basis. This is also where the significant difference exists between now and 20 years ago. Business models in 2000 were not structured enough and everything had been based on fantasy instead of vision. As of now, the most sought after shares in Robinhood are the ones representing the digital economy that investors interact with on a regular basis, such as when renting a vacation home, using a cab, or purchasing a vegan hamburger.

Investors who are older appear to be a lot more skeptical because they remember 2000 and also because the number of companies opting for an IPO even though they are not profitable is on the high side. Furthermore, they also believe that market distortion is responsible for the high valuations and it is because of companies going public after their accelerated growth stages and after they already have a lot of private funds, meaning that they only sell a small number of shares in the market. This results in demand not being able to match supply, which increases the share price. 

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