2018 proved to be an active year for company Initial Public Offerings (IPOs), with over 170 companies going public across the main markets. The reception of these companies by investors was largely positive in the first half of the year, although increasing volatility in the markets resulted in waning appetite amongst investors in the latter half of the year.
This effect could be associated with the nature of companies taking to the markets, with firms such as Snap and Blue Apron offering only wide market awareness but substantial losses without a clear route to profitability. Does this signal the end of the ‘easy-money’ era and a more discerning investor?
Looking at some notable listings in 2019 – Lyft, the ride-sharing app hoping to gazump the widely anticipated Uber floatation in Spring, was one of the first floats of the year but fell early victim to this lack of interest in late March. Although the first day of trading was relatively strong, with over 70 million shares changing hands on the first day pushing up the share price 8.7% to $78.29, this has steadily fallen to c$64 as at June. Not particularly impressive for a tech giant, or reminiscent of previous success stories.
Lyft’s example proved to be a warning to the more widely-recognised Uber, which initially held expectations of c$120bn. This figure proved to be woefully exaggerated, with the share price eventually set at $45, giving the company a value of $82bn. The first day of trading saw this fall 7.6% to $42, not a great start. This fall continued to reach a low of $37 in mid-May before recovering to $43 as at the date of writing. Likeness could be drawn to Facebook and Amazon shares which saw poor trading initially but have since stabilised and increased.
Bucking the trend, Pinterest debuted in mid-April priced at $19 per share but swiftly rose 28% to reach $24.4 at the end of the first day’s trading. This trend continued to reach a peak of $34 at the end of April, before the first earning statement highlighted considerably larger losses than expected and caused a run on shares. This now seems to have stabilised, settling at c$27 at the time of writing but remains a stark warning for investors in such firms that demand huge valuations with limited expectations of profitability.
Turning to the top-performing IPO of the year so far, Beyond Meat, the plant-based meat maker stormed the market after increasing the price during planning from a range of $19-$21 to a range of $23-25. On debut, trading started at $46, already an 84% increase on the IPO price, but continued to rise and reach $65.75 at the close of trade. The price continued to rise to peak at c$170 in mid-June, almost a seven-fold increase on the IPO price. Refreshing to see that the best debut stock market listing in two decades wasn’t a tech firm.
Looking at the remainder of the year and some other notable imminent listings to keep an eye on, ‘sharing economy’ pioneer AirBnB is expected to list in late 2019 which will be eagerly received. Currently hosting over two million people per night across six million hosts in 191 countries, shares will undoubtedly be hot property when they come to market.
Already making headlines is WeWork, the shared office space pioneer, which has already given itself a $47bn valuation following investment from SoftBank. Incredible for a loss-making company that has been labelled by many as a real estate company with a tech company valuation. The lack of regulatory issues and controversy that has faced other tech firms is not apparent with WeWork however, and could attract more sensible investors who can understand the market and see how the company can become profitable
Saying that, the markets are the markets and there is no way to predict whether any upcoming float will fly, or flop.