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Race to Public Markets Continues Despite Uber, Lyft Flops
Strong anticipated demand for Slack signals robust investor appetite; 2019 still expected to be a record
Share-price performance of large tech IPOs
Circle size reflects amount raised
Lyft stock rose 8.7% on its first day but has struggled since.
+89% first day
Note: Chart shows tech IPOs that raised more than $200 million.
First-day and overall performance based on percentage change from IPO price.
*Chewy’s first day of trading was Friday.
Sources: Dealogic (amount raised); FactSet (performance)
Peter Santilli/THE WALL STREET JOURNAL
Maureen Farrell and
June 16, 2019 7:30 a.m. ET
Investors eagerly snapped up shares of three companies that went public last week—cybersecurity firm CrowdStrike Holdings Inc., online pet-supply retailer Chewy Inc. and freelance-services marketplace Fiverr International Ltd. —and pushed them all up 50% or more.
The stellar performance has, for now at least, put to rest questions that have hung over the market since the highly anticipated initial public offerings of ride-hailing companies Uber and Lyft this spring proved to be duds. Both stocks currently trade below their IPO prices.
Online pet-supply retailer Chewy went public last week. Photo: Michael Nagle/Bloomberg News
With Slack Technologies Inc. expected to land a valuation in excess of $18 billion when it debuts this week—more than double its private valuation just last year—it is becoming apparent that investors are still hungry for newly public companies as long as the firms have swift growth and, ideally, profits. The IPO market is expected to set a record by dollars raised in 2019.
Overall, 2019 tech IPOs are up roughly 30% on average through Friday’s close, according to Dealogic. That surpasses the Nasdaq Composite’s 18% rise in 2019. Ten out of the year’s 26 tech IPOs are up more than 50% from their IPO prices.
“The last few weeks have provided proof points that there is no overhang from the deals that have struggled,” said Justin Smolkin, head of technology, media and telecommunications equity capital markets at Deutsche Bank AG . “Investors are very receptive to the IPO market and are being rewarded for their participation.”
IPO RushThis year is on track to be the biggest for U.S.-listed IPOs in terms of money raised since2000.Source: DealogicNote: All data are as of June 14 of each year.
.billionTech IPOsOther IPOs
Indeed, investors are turning to the new-issue market to salvage struggling portfolios. Though major U.S. stock indexes are up this year, their performance has been choppy. Tech giants that had been reliable gainers in recent years have stumbled—shares of Google parent Alphabet Inc. are down nearly 8% since the end of March, for example—as their dominance has opened them up to increased regulatory scrutiny that could tamp down growth. Companies that have bright prospects without such baggage have been big winners. The scramble for new issues extends beyond the hottest tech names to consumer companies like meat-substitute startup Beyond Meat Inc. and Chewy.
There is no guarantee the hot streak will continue or that 2019 will end up being a record year for new issues as any number of factors, including a market swoon, could halt the momentum. When investors embrace companies that lose a lot of money, as they do in some cases today, it can be a sign of a bubble.
This year’s IPO boom has done little to offset the historic decline in the number of U.S. public companies. As investors rush to buy shares of fast-growing tech firms, so do larger companies. In the past month, Salesforce.com Inc. agreed to buy data-analytics platform Tableau Software Inc. for more than $15 billion, and Alphabet said it is acquiring Looker, a business-intelligence and big-data analytics platform, for $2.6 billion. The limited supply of public companies has helped boost demand for new issues.
What’s more, tech companies have sold just 16% of themselves on average this year, compared with 26% on average since 1995, according to Dealogic. Slack, one of the larger companies set to debut this year, isn’t selling any new shares in its so-called direct listing.
CrowdStrike made its trading debut on the Nasdaq. Photo: Nasdaq
“We came into 2019 thinking we’d have an IPO renaissance, and we’ve been encouraged by constructive equity markets and strong public-investor appetite for these high-growth companies,” said Bill Ford, chief executive of private-equity firm General Atlantic.
Beyond Meat is emblematic of an IPO frenzy in which investors see big potential in nascent industries. The money-losing company’s stock is up more than sixfold since it made its debut in May.
AMAZING NUMBERS BELOW:
CrowdStrike’s shares, meanwhile, jumped more than 70% in their first day of trading last week after pricing far above raised expectations. The company’s roughly $13 billion valuation is up more than fourfold from where it was valued privately in 2018. It has been losing money each year and expects to continue to incur net losses for the foreseeable future. Investors say they are willing to overlook that because the company has foregone profits to go after a huge market. CrowdStrike’s total revenues more than doubled year over year, to nearly $250 million in the 12 months that ended Jan. 31.
“Investors value growth, and they’re being less differentiating between profitable growth and unprofitable growth,” said Bimal Shah, portfolio manager at Thornburg Investment Management.
Shares of Beyond Meat, a meat-alternatives company, are up more than sixfold since a May IPO. Photo: Mark Lennihan/Associated Press
But investors remain wary of money-losing companies whose growth has stalled.
Uber and Lyft, for example, have experienced a slowdown and lack clear paths to profitability.
There are increasing concerns about how WeWork Cos., the real-estate rental company that has filed confidentially for an IPO, will be received by public investors and whether its previous valuation of nearly $50 billion is realistic. While WeWork’s revenue more than doubled last year, its losses are growing nearly as quickly, though the company has said it is focused on a huge market opportunity.
Whether or not WeWork debuts later this year as planned, the IPO pipeline is robust, with Peloton Interactive Inc., Poshmark Inc. and Postmates Inc. among the companies slated for listings in the second half.
“September is gearing up to be busy,” said David Goldschmidt, global head of Skadden, Arps, Slate, Meagher & Flom LLP’s capital-markets group. “But market windows can close without warning.”