Morning Markets: This year’s IPOs have given back lots of ground.
Slack’s rise to a public company is a storied tale. The unicorn attracted oceans of capital, took on a technology giant, and managed to put up some of the fastest revenue growth in startup history. But since its direct listing, Slack’s value has slowly eroded.
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It’s a topic we’ve explored recently on several occasions (here, and here) if you want to understand the particular circumstance. There’s something similar but broader going on, however, that’s worth our discussing. Namely that all but a handful of 2019’s IPO that we have our eyes on have given up more ground from their recent highs than we anticipated.
Slack, for reference, is off about 8.5 percent from its direct listing reference price but down a sharper 43.3 percent from its highs (for a new IPO, its 52-week high is the same as saying its all-time high). Here are a few more that we found surprising (more on this spreadsheet):
- Fiverr: -60.0 percent from all-time highs
- Lyft: -51.5 percent from all-time highs
- PagerDuty: -51.1 percent from all-time highs
- The RealReal: -44.0 percent from all-time highs
- BeyondMeat: -40.3 percent from all-time highs
And a number of companies are off 30 percent or more from their 52 week and all-time highs, including Uber, CrowdStrike, Medallia, Chewy, and 9F. Another seven 2019 IPOs are off 20 percent or more from highs.
What the data sketches, despite only a handful of companies actually trading under their initial IPO or direct listing price, is a decline in optimism post-debut. This somewhat undercuts the view that tech and venture-backed IPOs (our fare) are massively underpriced. Instead, given the declines, it appears that they are merely underpriced.
But as the SaaS market stays in a holding pattern as its revenue multiples slowly compress, and the larger market bounces up and down on a string labeled “trade rumor,” perhaps it isn’t surprising that a cohort of unprofitable, growth-oriented companies have given back ground.
You can look more deeply into the data and find trends (the more unprofitable the company, the sharper its declines, it seems) but on average our set of IPOs are up an average of 41 percent. Take out BeyondMeat’s massive gains and that figure falls to a far-smaller 20 percent. That’s down from prior highs, and hardly indicative of an IPO market gone crazy. Given that some companies on our list now have quarters of time under their belt as public companies, it’s a downright modest figure.
Illustration: Dom Guzman.