It has been a big year for IPOs so far, with the next chapter to unfold later with Uber (NYSE :), later today, when it reveals its pricing while it is ready for general trading tomorrow.
So far this year we have seen Levi Strauss (NYSE :), Lyft (NASDAQ :), Pinterest (NYSE :), Zoom Communications (NASDAQ :), Beyond Meat (NASDAQ 🙂 and in the wake of Uber tomorrow , there is also the prospect of Avantor and WeWork (NYSE 🙂 in the coming weeks.
The reason why most companies like to float on the stock market, apart from the desire to raise extra money, is the added credibility that a public mention can give to the company. It can also be a useful mechanism to reward employees with rewards for good performance in the form of stock options in the company.
This desire to raise money, as well as a dynamic stock market, has brought a rush of companies with varying degrees of success. The problem with IPOs is that investors sometimes get caught up in the hype of a new idea or company and do not pay attention to the underlying foundations of that company.
Not every IPO ends like the Facebooks of this world that went from strength to strength after an initially rocky start. For every Facebook (NASDAQ 🙂 you also have your GoPro & # 39; s (NASDAQ 🙂 or your Snap (NYSE 🙂 where the market valuations of the business model were not related to the underlying assets.
Facebook drove for $ 38 per share in 2012 and initially shifted to less than $ 20 per share before it started the rally that saw its share value rise above $ 210 halfway through last year. On the other hand, that GoPro drove at $ 24 a share in 2014, rallying to just shy of $ 100 a share in the first few weeks before it became difficult to trade at just over $ 6 per share.
It has been a similar story for Snap, who after an initial pop higher from his $ 17 IPO price has seen his shares fall to as much as $ 5 per share.
The common denominator behind the falls in the share price in both is the failure of both companies to respect the heroic valuations imposed on them by overly optimistic investors. In the case of both companies, they had billions of dollars on revenues that were never much more than $ 1 billion.
In the case of Snap, his revenues only increased above the $ 1 billion limit by the end of 2018 and they still have to make a profit, but we have to believe that this justifies a valuation of $ 14.5 billion.
So what should we do with the direction of travel of the latest range of stock market introductions and the prospects for Lyft, Pinterest, Zoom Communications and Beyond Meat, which have seen a mixed investor response
In the case of Lyft, it is difficult to see any light at the end of the tunnel when viewed yesterday through the prism of an IPO price of $ 72, and a valuation of $ 24 billion. This always seemed to be completely unrelated to the reality and the prospect of a price war with Uber and very little evidence that the company will be able to make a profit, the dream has quickly become very sour, with the shares just now above $ 50. This still values ​​the company at $ 15 billion in total revenues of nearly $ 3.3 billion and losses of $ 1 billion per year.
Pinterest has had a more positive debut, currently trading far above the $ 19 IPO price, with a valuation of more than $ 15 billion in revenues of $ 756 million. The company also made a loss of $ 63 million last year and is expected to lose $ 414 million in 2019, although most of this is likely to be a one-off cost due to the IPO. Nevertheless, full-year revenue is expected to rise to $ 1.1 billion.
Zoom Communications is the high point in this list of IPOs because it is actually profitable, it debuted at $ 36 per share and has swapped a value of $ 80 per share, making the company more than $ 20 billion. A much better investment for sure, but then we look at the total income and these are $ 330.5 million, which corresponds to a profit of $ 7.5 million, while the turnover in 2020 is expected to rise to $ 592 million.
Regarding Beyond Meat, the vegan hamburger-meat brand the market seems to have lost its mind, debuting at $ 25 per share, shares rose to $ 85 per share in the first few days of April trading, activities valued at $ 4.3 billion, on sales of $ 87.9 million and losses of $ 28 million. If this is not an accident that still needs to happen, I don't know what it is.
So what to expect with regard to Uber? Although it is always desirable to expect the positive, one can only feel that there is again a significant distance between the market value and the actual fundamentals, especially as there is likely to be increasing pressure on margins, as well as the prospect of further regulatory involvement when it comes to employment practices.
Revenue estimates seem to improve this year from $ 11.27 billion to $ 14.18 billion, but losses are expected to rise to $ 5.4 billion by the end of this year and only slightly decrease in 2020 up to $ 4.1 billion, says Bloomberg. With an estimated value of $ 80bn, this seems rather heroic and while management is probably performing well from the IPO, it's hard to see too much benefit for someone else.
Later this month, on May 17, we also have Avantor, a chemical company that was acquired in 2010 from private equity firm New Mountain Capital of Covidien. It wants to raise more than $ 2 billion, but that depends on the IPO price it gets. The company provides education, healthcare and biopharma services and products and while it appears to have seen significant revenue growth, $ 5.8 billion in 2018, largely due to acquisitions, it has not made a profit in the last three years .
It also has a lot of debts, worth $ 6.7 billion to be precise, with about $ 3 billion in the next five years, and it is not immediately clear what the IPO funds are likely to be used for.
Looking ahead to WeWork, which could have a valuation of $ 47 billion is also a huge cash register and its valuation also looks extremely optimistic. Large investor Softbank (T 🙂 has also recently reduced the size of its investment, because the shared working trading model is under great control. This model worked well in the UK, with Workspace Group (LON 🙂 a major player in this field. However, the valuation is much lower for £ 1.7 billion on revenues of £ 140 million and profits of £ 55 million.
When investors talk about finding the company that could become the next Amazon (NASDAQ :), they do not understand that Amazon did not have a multi-billion-dollar rating when it first appeared on the stock market 22 years ago. At the time of the stock market introduction on May 15, 1997, his market capitalization was $ 300 million and his share price was $ 18 per share, so there was less risk associated with investing in a company that was far from near its potential
The problem with most of these IPO valuations is that the potential has already been properly packed, meaning that any disappointment will likely see a fairly rapid revaluation by investors when the optimistic bubble pops up.
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