Jun 14, 2019

The stock market is desperate for a hero

Dion Rabouin, author of Markets

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

Biden formally secures Democratic presidential nomination

Joe Biden speaks at Delaware State University's student cente on June 5. Photo: Jim Watson/AFP via Getty Images

Former Vice President Joe Biden became the formal Democratic presidential nominee on Friday evening, per AP.

The big picture: Biden has been the presumptive frontrunner to take on President Trump since Sen. Bernie Sanders suspended his campaign in early April.

Updated 5 hours ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 9 p.m. ET: 6,724.516 — Total deaths: 394,018 — Total recoveries — 2,996,832Map.
  2. U.S.: Total confirmed cases as of 9 p.m. ET: 1,894,753 — Total deaths: 109,042 — Total recoveries: 491,706 — Total tested: 19,231,444Map.
  3. Public health: WHCA president says White House violated social-distancing guidelines to make reporters "a prop" — Jailing practices contribute to spread.
  4. Sports: How coronavirus could reshuffle the sports calendar.
  5. Jobs: Better-than-expected jobs report boosts stock market.
  6. Media: The Athletic lays off 8% of staff, implements company-wide pay cut.

Scoop: German foreign minister to travel to Israel with warning on annexation

Heiko Maas. Photo: Michael Kappeler/picture alliance via Getty Images

German Foreign Minister Heiko Maas is expected to travel to Israel next week to warn that there will be consequences if Israeli leaders move forward with plans to annex parts of the West Bank, Israeli officials and European diplomats tell me.

Why it matters: Israeli and European officials agree that if Israel goes ahead with unilateral annexation, the EU will respond with sanctions.