San Francisco: WeWork, Peloton, Endeavor, Poshmark and more just got the message: It’s not a great time to go public.
Disappointing initial public offerings and unsettled economic conditions could shut down many IPOs for the rest of the year — and maybe well into 2020, when the next batch of marquee IPO candidates like Airbnb could meet an even gloomier market and geopolitical environment.
The Hollywood agency Endeavor Group Holdings Inc shelved its IPO on Thursday, saying unfavourable market conditions have dented investor sentiment. Poshmark Inc, the food-delivery company, is expected to postpone its IPO into next year. Also in flux are a range of stock offerings from e-commerce companies and cybersecurity firms Palantir Technologies Inc, Postmates Inc, and McAfee Inc.
The dim outlook isn’t a total surprise given the high-profile flops this year. Fitness start-up Peloton Interactive Inc fell 11 per cent below its IPO price on its first day of trading Thursday and fell further on Friday. WeWork, the office-sharing company, was forced to put off its offering to next year in the face of tepid demand.
Ride-sharing giants Uber and Lyft have also traded well below their offering prices, prompting “a lot more market scrutiny” of IPOs, said Jeffrey Langbaum, a senior analyst at Bloomberg Intelligence.
The trend shows a disconnect between companies’ lofty private valuations and public expectations that are sceptical of even well-known brands.
“Private valuations have been going up, but that hasn’t necessarily translated into the public IPO market,” said EquityZen research analyst Adam Augusiak-Boro.
Sharing-economy start-ups, especially late-stage companies, are going to have a tough time going public, said Bloomberg Intelligence analyst Mandeep Singh. The appeal of selling rather than going public will increase for companies such as Postmates, he said.
Postmates said it had submitted a confidential filing in February, but so far there is no sign the company is starting an IPO roadshow anytime soon. Its plans could slip in to 2020, people familiar with the matter said. Postmates declined to comment.
Palantir, the security company, has decided to keep on its path of raising billions in the private markets instead of a near-term IPO, Bloomberg has reported.
McAfee had been looking to be valued as high as $8 billion in an IPO later this fall, Bloomberg has reported. It’s unclear where its plans stand. McAfee declined to comment.
J. Crew plans
Despite the uncertainty, some IPOs on deck for the year are moving forward, but it might be because they have no choice. Madewell, the denim unit of J. Crew, is still planning to go public this year, according to a person familiar with the matter. J. Crew is distressed and the company is under pressure to deliver returns to its credit holders. A representative for Madewell declined to comment.
Before the high-profile IPO slog this month, 2019 had been a solid one for debut offerings. With almost $17.4 billion raised, May was the biggest month for IPOs on US exchanges since September 2014 when Alibaba Group Holding Ltd. raised $25 billion in its IPO. More than half of the May total was Uber’s $8.1 billion offering.
Overall, 187 IPOs on US exchanges have raised $59 billion this year, including so-called green shoe shares issued by underwriters after the initial listing.
Software and cloud computing companies have generally performed well. CrowdStrike Holdings Inc exceeded its IPO target with a $612 million offering in June and its shares are now up more than 50 per cent from its offer price.
Beyond Meat Inc, which makes burgers made of chickpeas other plant-based proteins, is the best performer of the IPO class of 2019, with its shares trading more than 500 per cent above their offer price.
Smaller, less high-profile companies also seem able to push ahead with IPOs. Opportun Financial Corp, a financial technology company, finished trading 8 per cent above its IPO price after raising roughly $90 million.
Still, other software companies have flopped. Slack Technologies Inc, a workplace-messaging platform provider, bypassed the IPO process with an unusual direct listing of its shares. Slack’s shares are now down about 15 per cent since the debut.
“Companies aren’t necessarily rushing to go public,” said Alan Felder, head of private capital markets for Americas at UBS Group AG. “The private market is very healthy.”