Sep 27, 2019

The IPO story gets complicated

Illustration: Aïda Amer/Axios

Public market investors have become less willing to leave their comfort zones, and it's manifesting most obviously in the IPO market.

The big picture: Novel disruption has fallen out of favor, with many preferring more time-tested models like enterprise SaaS and biotech.

  1. Peloton yesterday raised over $1.1 billion in its IPO, pricing at the top of its $26-$29 range, but its shares then got crushed (although still valued well above the last private mark). Its CEO talked to Axios yesterday about the falling stock price.
  2. Endeavor, the live events and artist representation firm led by Ari Emanuel, last night canceled an IPO that originally was to raise over $600 million, before it was later downsized.
  3. WeWork... well, you know the story there.

Yes, all three companies have dual-class shares. Yes, all three were highly valued by venture capital or private equity investors. Yes, all three were unprofitable for the first half of 2019.

  • Those characteristics are also true of Datadog and Ping Identity, both of which had successful IPOs this month and continue to trade above offering.

The trio's real similarity was that each had a very complicated story.

  • Peloton is a high-end hardware and SaaS business that produces original media content, sells apparel, and runs its own delivery logistics.
  • Endeavor began life representing movie stars and Donald Trump, but later expanded into a massive live events business that includes the UFC and Professional Bull Riders. Plus, it's got a streaming platform.
  • WeWork... again, it's different.

All of this comes against the backdrop of Uber, which also had a very complicated story and an IPO that emboldened short-sellers.

Up next: A lot of biotech startup IPOs, but no high-growth, complicated tech unicorns.

  • "We're about to get a bit of a break from those sorts of deals, which I think is good for everyone," a top Wall Street banker told me this morning.
  • Private markets follow public markets, so don't be surprised to see some valuation and/or deal size pullback for these "hard to comp" companies.
    • Particularly if SoftBank fails to raise Vision Fund 2.
  • Goodbye to egregious governance terms. Dual-class will survive, but WeWork laid a third rail for others to avoid.

U.S. IPOs have still outperformed the S&P 500 in 2019, although the gap has shrunk significantly this month.

The bottom line: The sky isn't falling, but it's gotten a lot darker. And, for some, downright stormy.

Go deeper

The unicorn myth exposed

Illustration: Aida Amer/Axios

A huge shift in American business was overshadowed amid impeachment last week: Investors are rethinking hot startups with frothy valuations and putting discipline (and reality) above the myth of the almighty and all-knowing founder.

The big picture: The market is now bringing private valuations around to reality, as skittish Wall Street investors have been punishing billion-dollar-plus initial public offerings with questionable balance sheets or paths to profitability.

Go deeperArrowSep 30, 2019

Balance sheets and profits seem to matter to investors again

Illustration: Aïda Amer/Axios

The mood has shifted and balance sheets and profits seem to matter to equity investors again, as the recent debuts of large, money-losing companies have been punished by the market.

Driving the news: Shares of smart stationary bike company Peloton opened down 7% and closed 11% below their $29 IPO price to mark the third-worst performance for an IPO that raised more than $1 billion since the financial crisis, Bloomberg data showed.

Go deeperArrowSep 27, 2019

IPO misery

Illustration: Eniola Odetunde/Axios

Once upon a time, going public was a fun and joyous thing to do. In the late 1990s, young companies would raise money in an IPO, there would be an enormous first-day pop, everybody would start talking about you, and the combination of new money and free PR would turbocharge your business.

Flash forward: Today, it's hard to find anybody who's happy with way that companies transition from being private to being public. Even the institutional clients of the large investment banks, who can get significant allocations of coveted IPOs, are feeling the pain. Companies like Uber and Peloton have never traded above their IPO price.

Go deeperArrowOct 3, 2019