The IPO market has cooled off in the third quarter, and newly listed companies aren't faring well either, portending the worst market since 1995. A few companies have also called off plans for public listings, citing bad market timing.
The third quarter saw 39 IPOs that raised about $10.8 billion collectively, down slightly from the last year, according to data from Renaissance Capital.
SmileDirectClub closed the debut session at a 27% discount to its offer price, while Peloton fell 11% short of its offer price.
On average, IPOs fell 12% from their debut to end the quarter with a 1% average return, according to Renaissance Capital.
Accent On Path To Profitability
The primary reason for the setback is apparently that companies are not laying out a clear path to profitability, Bob Greifeld, chairman of Virtu and former CEO of Nasdaq, said on CNBC's "Squawk Box."
The IPO market is getting quite bubbly, similar to the dotcom era, when companies came public with no know path to profitability, Greifeld said.
Companies eyeing a public listing tout themselves as the next Amazon.com, Inc. (NASDAQ: AMZN), which at the time of its listing did not inspire confidence that it would be profitable, but later went on to become a success story, he said.
Amazon did have a clear path to profitability even as it continued to ratchet up investments, Greifeld said.
Looking at the recent WeWork fiasco, Greifeld said that if the company had demonstrated the path to profitability, the outcome would have been different altogether.
Greifeld also downplayed the importance of the timing of an IPO.
"When you time your IPO should not matter" when building a company intended to last for decades, he said.
All Is Not Lost
It's not time to sound the alarm bell yet, Greifeld said. Unlike in the aftermath of the dotcom era, when public listings tapered to near zero in 2003, IPOs have raised over $50 billion this year.
Yet there's no denying the fact there is a valuation mismatch, he said.
"Post WeWork, if we don't have a path to profitability, you have a hard time coming public. If you are growing, you have a path [and] you are profitable, you are going to do fine."
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