Jun 14, 2019

The stock market is desperate for a hero

Photo: Drew Angerer/Getty Images

In the absence of strong balance sheets or strong profits, the U.S. stock market is lavishing dollars on any new company that can put together a plausible theory of future success.

What's happening: The 2019 FOMO market may not have been willing to look past Uber or Lyft's $1 billion a year in losses — at least on IPO day— but the unbridled enthusiasm for companies like Beyond Meat, Shockwave Medical and Zoom show investors are desperately seeking a winner and they're willing to pay top dollar to find one.

  • Beyond Meat, up 465% from its May IPO price, lost nearly $30 million in 2018 with $88 million in revenue and noted in its S-1 filing, "We may be unable to achieve or sustain profitability."
  • Shockwave Medical, up nearly 250% from its March IPO price, lost $12.8 million in 2018, on revenues of just $7.3 million.
  • Zoom, up 180% from its April IPO price, is "profitable" but has a net income loss of $7.5 million for the period ending January 2019.

Driving the news: Gig economy marketplace Fiverr became the latest IPO to catch fire. Despite being in business for nearly a decade, the company is not profitable, manages to lose more money the more revenue it earns (-$36 million on $75 million in revenue last year) and has no real plan for turning a profit in the near future. Nevertheless, it rose 90% on its opening day.

  • "If you've got extremely fast growth and a market opportunity, investors are comfortable knowing that profits will come later," Matt Kennedy, who analyzes IPOs for Renaissance Capital told CNBC.
  • The Renaissance Capital IPO ETF, which tracks the latest big IPOs, is up 34% this year, more than twice the performance of the S&P 500.

Watch this space: Even when companies came to market with a plan to make money, things didn't often work out that way. University of Florida professor Jay Ritter's data shows more than 60% of the over 7,000 IPOs from 1975 to 2011 had negative absolute returns in the 5 years following their first day of trading and "only a handful produced extreme positive returns."

  • From 2000 to 2016, the data shows the 6-month absolute and excess return for new companies have both been negative.

Go deeper: Direct listings challenge benefits of traditional IPOs for unicorns

Go deeper

Private equity returns fell behind stocks over the past decade

Illustration: Aïda Amer/Axios

U.S. private equity returns fell just below S&P 500 returns for the 10-year period ending last June, according to a report released Monday morning by Bain & Company.

Why it matters: Private equity markets itself as beating public markets over long-term time horizons, and usually providing an illiquidity premium to boot. These new performance figures not only dent such claims, but provide fresh ammunition to critics of public pension investment in private equity funds.

Why Apple may move to open iOS

Photo illustration: Jakub Porzycki/NurPhoto via Getty Images

Apple may finally allow iPhone owners to set email or browsing apps other than Apple's own as their preferred defaults, according to a Bloomberg report from last week.

The big picture: Customers have long clamored for the ability to choose their preferred apps, and now Apple, like other big tech companies, finds itself under increased scrutiny over anything perceived as anticompetitive.