- 2019 was a tough year for unicorn startups – privately held companies valued at more than $US1 billion – going public through an initial public offering process.
- Though the first half of the year was strong for IPOs, “investors got really turned off” after big disappointments from companies like Uber and Lyft, according to Kathleen Smith of Renaissance Capital.
- Still, the IPO market as a whole has outperformed this year. The Renaissance IPO ETF is up 30% this year compared to the S&P 500 index, which is up roughly 25% in the same time frame.
- Here are the biggest unicorn IPO flops of the year.
- Read more on Business Insider.
This year has been a rough one for some companies trying to go public through an initial-public-offering process, or IPO.
Unicorn startups, or privately held companies with valuations over $US1 billion, didn’t fare very well in the public markets in 2019, as investors grew increasingly wary of unprofitable companies.
“I think the market was very robust all the way through the first half,” said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO exchange-traded funds. But then, a few weak IPO performances early in the second half spooked investors, Smith told Markets Insider in an interview.
“Investors got really turned off,” Smith said, and they stopped flocking to buzzy unicorn IPOs. “I’ll call it a buyer’s strike, not wanting to participate because there were such big disappointments.”
Those large “unicorn” disappointments weighed on IPOs for the rest of the year. In the fourth quarter, most companies going public have priced at the lower end of their proposed ranges, Smith said.
While that can be frustrating for companies that use the IPO process to raise capital, it is good for investors, Smith said, because companies that are underpriced tend to gain in the market later.
“When investors are risk averse, IPOs are priced better,” she said. “This is a good time for investors in the IPO market, not such a good time for companies.”
Overall, the IPO market slowed this year, Smith said. In 2019, 152 companies IPO’d, raising roughly $US44 billion, according to Smith. That’s less than 2018, when 192 companies IPO’d and raised nearly $US47 billion in proceeds, Smith said.
Still, IPOs in general – not just those with sky-high valuations – performed well for investors in 2019. The Renaissance IPO ETF is up 30% year-to-date through Tuesday’s close, compared to the S&P 500 index, which is up roughly 25% in the same time frame.
Smith said that in 2020, it’s likely that companies will try to push back on the processes available to them for becoming public, because the “regular IPO process is not working” for all companies. That could include more direct listings, like Slack in 2019 and Spotify in 2018, even though they haven’t been successful for investors, she said.
Here are the top unicorn IPO flops of 2019, in chronological order:
March 29, 2019
IPO price: $US72 per share
Performance on first day of trading: +8.7%
Performance from IPO price through December 10:-37%
May 10, 2019
IPO price: $US45 per share
Performance on first day of trading: -7.6%
Performance from IPO price through December 10:-38%
September 12, 2019
IPO price: $US23 per share
Performance on first day of trading: -27%
Performance from IPO price through December 10:-65%
September 26, 2019
IPO price: $US29 per share
Performance on first day of trading: -11%
Year to date performance through December 10:+13%
WeWork actually did not make it through the IPO process. After Uber and Lyft’s disastrous IPOs, investors were on high alert for unprofitable unicorn companies looking to list on the public market.
Then, WeWork released its S-1, or prospectus, a regulatory filing all companies looking to list publicly must submit to the Securities and Exchange Commission.
“When everyone talked about WeWork and they the opened the prospectus, it was like, you’re kidding,” Smith told Markets Insider. “No one could believe what was inside.”
She continued: “This was so bad. We heard everything was so good.”
In six weeks, the company went from one with a $US47 billion valuation to one that was reportedly considering bankruptcy. In addition, WeWork’s cofounder and then-CEO Adam Neumann stepped down from the top job.