The year 2019 gave hope for US investors especially that it would surpass 1999 and be the best year in decades, but it presented them with many unpleasant surprises. According to a piece in Wall Street Journal, the 211 companies that went public in the US this year raised a total sum of $62.3 billion, compared to $108 billion 20 years ago just before the dot-com crash.
- According to Dealogic, stocks of technology startups and other companies that went public in the US this year are now trading on average with a premium of 23% to the offering price. That’s not much, considering that the S&P 500 gre 30% over the same time.
- Technology companies have shown themselves to be even worse: their valuations since IPOs have grown on average by only 8%. For comparison: Nasdaq Composite index grown around 35%.
- And perhaps the worst situation is with companies that raised more than $1 billion during the IPO. There were nine companies like this including Uber and Lyft, whose cost fell by 30% compared to the price before IPO, and telemedicine companies SmileDirectClub, with a loss of 60% in the process.
- It was not possible to impress investors with one of the fastest growing startups – Pinterest and Slack took their losses, and the WeWork and Endeavor Group Holdings completely had to abandon the IPOs.
Evan Damas from Morgan Stanley stated, “We have found a new normality. Investors want to pay for a little more certainty about profitability and a little more realism in growth forecasts.” This is proved by numerous examples of companies with a relatively moderate valuation and a plausible financial arithmetic for investors.
- Companies with limited losses, profits or near-term self-sufficiency show the best results: Tradeweb Markets financial service, Chewy Inc. , an online pet goods retailer. and chemicals company Avantor Inc. gained 30% to 75% compared to their IPOs.
- A group of technology companies from the cloud also feel pretty good – for example, the shares of Zoom Video Communications, a video conferencing service company, are trading 80% more than the IPO price. And the developer of the cloud platform for business payments, Bill.com has risen its price since the mid-December IPO by more than 70%.
- And almost all investors loved the startup Beyond Meat, the lab meat company. After placing $25 per share in May on the first day of trading, prices doubled, and by July the company was already nine times more valuable. Beyond Meat showed its first profit in October, and despite an impressive drop from the July peaks, now its shares are still well above the offering price – about $76, which corresponds to a capitalization of $4.6 billion.
Investors will continue to be wary of companies that generate loss. Nevertheless, 2020 is expected to be active in terms of IPOs – mainly small and little-known companies are preparing for the process, but all attention will be drawn to the AirBnB.
In March 2017, during a round of financing, the company was valued at $31 billion, but it is not certain whether investors will be ready to offer the same price in 2020. Airbnb is still losing money, but it has billions left in its account and there is no need to raise money. Most likely, just like Slack and Spotify, the company will choose the direct listing procedure.
