Nov 6, 2019

Wall Street is no place for unicorns

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Data: FactSet; Chart: Axios Visuals

Shares of Uber closed down almost 10% on Tuesday even though the company beat analysts' expectations on earnings and revenue.

Why it matters: It was the latest dollop of bad news for this year's crop of tech unicorns, which have largely fallen flat since going public, despite their mammoth private valuations.

What's happening: After years of ravenous buying, Wall Street turned bearish on new unprofitable companies and even investors' newfound risk appetite hasn't been enough to reverse the trend.

By the numbers: An S&P index tracking U.S. companies worth over $1 billion that have IPO’d or spun off within the last five years, has underperformed the S&P 500 by nearly 12% over the last 6 months.

  • With Beyond Meat no longer among their ranks, those unprofitable U.S. companies have had a median stock return of 0% this year, Reuters reported Monday.

The big picture: Before this year, unprofitable had been exactly what investors wanted.

  • In 2018, 81% of companies to IPO had negative 12-month trailing earnings on the day they went public, according to an analysis from University of Florida professor Jay Ritter.
  • This year, 80% of companies that had IPOs reported negative earnings in the 12 months ahead of their launch, analysis from ratings agency S&P Global shows.
  • "Had not WeWork and Endeavor pulled their IPOs in recent weeks, the figure would have been on track for the highest reading ever," S&P's director of index investment strategy Chris Bennett wrote in October.

The bottom line: Bennett notes there have been growing "signs of trouble in tech paradise, with Uber and Lyft’s post-IPO struggles and WeWork’s 'failure to launch' highlighting the potential challenge of transferring private valuations onto the public stage."

Go deeper: The fall of unicorns

Editor's note: This story has been corrected to reference the S&P U.S. IPO & Spinoff Index (not the S&P U.S. Spinoff Index).

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