Cracks appearing in IPO market

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"On fire." "Going gangbusters." "Hot, hot, hot!" Just some of the superlatives that have been thrown around to describe the Canadian IPO market over the past few months.

And why not? From Cara Operations Ltd. to Shopify Inc. to Stingray Digital Group Inc., it has been one slam dunk initial public offering after another. The drill has generally been the following: File a preliminary prospectus, see demand for your shares vastly outstrip demand, increase the size of the deal, price higher than you expected, then sit back and watch the stock rocket on day one.

However, there are inklings that things are starting to slow down and concerns are starting to surface.

Montreal-based tea shop operator DavidsTea Inc., which was priced at $19 (U.S.) a share, blasted out of the gates on June 5, rising 42 per cent during its first day of trading on the Nasdaq Stock Market to $27 a share. On Tuesday, the stock closed at $29.16. If you had bought the stock on the IPO you were looking at a 53-per-cent gain. The next day, the rug got pulled from under investors. On Wednesday, the company reported its first earnings report as a publicly traded entity and it was brutal – a loss of $93-million (Canadian) in the first quarter, compared with a $1.4-million profit in the comparable period the year before. The stock lost one-quarter of its value on the news. The shares are now trading just under $22 apiece, which is about $3 above the IPO price. That's acceptable perhaps if you are an institutional investor and you bought on the IPO, but the scores of retail investors who bought stock in the secondary market are underwater.

Thursday night, online lender Mogo Finance Technology Inc., which according to spokesperson Ross Marshall doles out loans to "the full credit spectrum" of consumers, including individuals with no credit score, priced its upcoming IPO at $10 a share, which was below the $11 to $13 range the company had indicated earlier. Mogo raised $50-million – as much money as it planned to. But the rub was that Mogo ended up selling a bigger piece of itself than it had planned.

Mogo, which had sales of $23-million in 2014, has been increasing its revenue over the past three years but like many technology companies is not profitable. It posted a loss of $4.2-million for the first three months of 2015, which was $1-million more than the first quarter of 2014.

Mogo isn't likely to be considered a bellwether for the entire Canadian IPO market. It's a small-cap company and is considered a fairly speculative investment. But investors will be paying close attention when it starts trading on the Toronto Stock Exchange late next week to see whether the streak of hit IPOs on day one continues in Canada.

The Mogo stock sale is being led by BMO Nesbitt Burns Inc. and Cormark Securities Inc. and co-managed by Canaccord Genuity Inc., CIBC World Markets Inc. and National Bank Financial Inc. Bankers are being paid a 6-per-cent commission on the deal, which is typical for an IPO of this size.