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Friday Charts: Unicorns, Hot IPOs and a Biotech Buyout Binge

We’re going to leave it to Justin Timberlake to “bring sexy back.” But here at Wall Street Daily, today it’s all about bringing the charts back!

Every Friday, we used to ditch the long-winded analysis in favor of a handful of carefully selected charts.

Our rationale? A picture can be worth a thousand words. Even for investors.

So we’re going back to our roots. Starting right now (and every Friday from here on out), it’s time to let the charts do (most of) the talking.

This week, we’re serving up a cautionary tale about tech startups, an inevitable flood of “hot” IPOs and Big Pharma’s desperate need to refill the pipeline to fuel future growth.

Stampede Ahead?

Unicorns — private companies valued at $1 billion or more — are supposed to be a rarity. Only now, they’re everywhere in Silicon Valley.

Number of unicorn companies at beginning of year

Thanks to years of easy money from venture capitalists, the number of unicorns in existence has swelled 242% since 2014.

If you think all that wealth creation is a positive thing — think again.

It’s not really wealth until it’s liquid.

While the trend in recent years has been to stay private as long as possible, the funding environment is changing.

Case in point: The number of mega-rounds — $100 million or more — dropped to a five-quarter low in the fourth quarter of 2016.

It’s high time for VCs to convert paper gains into actual gains. So all these unicorns need to be set free via IPOs.

As you can see, we’re way overdue for a stampede.

Number of IPOs per year

The total number of IPOs fell 38% per year for the last two years.

If we focus only on tech IPOs, the downturn is even more dramatic. There were only 15 tech IPOs last year, which is down from 28 in 2015 (-47% year over year) and 62 in 2014 (-55% year over year).

Translation: Expect the IPO hype machine to kick into overdrive this year to get companies like Snap public. Despite how they’re advertised, though, they’re not all going to be “hot IPOs.” Caveat emptor!

Biotechs Ripe for the Picking

While the IPO market might be laden with land mines, the biotech sector should prove fertile ground for investing in 2017.

Major drugs coming off patent in 2017

Why? Because Big Pharma companies have no choice but to acquire smaller biotechs to replenish drug pipelines.

Happy hunting!

Ahead of the tape,

Louis Basenese
Investment Director, Wall Street Daily