Friday, September 13, 2019
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Consumer tech’s nightmare IPO year
When 2019 began, it was hailed as the year of the unicorn IPO. After years of anticipation, investors would finally be offered a piece of the consumer tech names that have defined the 2010s economy just as the decade comes to a close.
But instead of triumphant market debuts, for many of these companies 2019 has been a year from hell.
As of Thursday's close, shares of Uber (UBER) were down over 25% from their post-IPO highs. Lyft (LYFT) shares are down almost 50% from their highs. Both stocks are trading below where the IPOs priced.
And while the rise of ride-hailing apps is the biggest way tech companies changed consumer habits in the 2010s, by the time investors were able to invest in these services en masse their enthusiasm had waned. The techno-optimism of this decade has not overcome investor distaste for hundreds of millions of dollars in quarterly losses.
On Thursday, SmileDirectClub (SDC) became the latest consumer-facing tech name to make a disappointing public market debut. After the stock priced at $23 per share on Wednesday — higher than the expected range — shares dropped 27% in their first day of trading, settling at $16.67. SmileDirectClub is the first company since at least 2008 to price its IPO above its target range and then decline when shares began trading, according to Bloomberg.
Like Uber and Lyft before it, SmileDirectClub has enjoyed rapid growth in both revenues and losses. But the struggles of SmileDirectClub — which sells teeth alignment kits over the internet and calls itself "the first direct-to-consumer medtech platform for transforming smiles" — are not unique to this market. It is merely just the latest company to receive a cool reception from public markets.
Shares of Revolve (RVLV), the millennial-focused e-commerce site that is actually profitable, are almost 50% below their post-IPO highs. Also lagging are shares of The RealReal (REAL), which as of Thursday's close were more than 10% below where the IPO priced.
Meanwhile, shares of Slack (WORK), which went public in a direct listing on June 20 and straddles the line between being enterprise and consumer tech, have never really gotten off the mat: the stock opened at $38.50, traded to $42, and on Thursday closed at $25.62, below the $26 “reference price” the company set ahead of its direct listing.
All this has made the waters choppy for the next two high profile tech companies expected to enter the market: Peloton (PTON) and WeWork's parent company The We Company.
Peloton is expected to price shares between $26 and $29, giving the company a valuation of up to $8.2 billion. This would be roughly double the company's value in its latest private fundraise. But investor belief in this valuation will surely be tested, because like those have come before it, Peloton is rapidly growing both its revenue and losses.
We's IPO process, meanwhile, has been a well-publicized headache. The company — which like Slack serves enterprise customers but enjoys consumer brand level awareness — is now looking at a pre-IPO valuation more than 50% lower than its latest private fundraise. Instead of waiting to bet against We once it comes public, investors have already started saying their piece.
This year's IPO market, however, has not been a failure writ large. Investors have hit home runs with stocks like Zoom (ZM) and Beyond Meat (BYND), which have more than doubled since their debuts. Additionally, the IPO market is still on track for its biggest year since 2014, according to data from Renaissance Capital.
But if 2019's IPOs were supposed to be a celebration of consumer tech's biggest names, public market investors never got the invite.
What to watch today
8:30 a.m. ET: Import Price Index month-on-month, August (-0.4% expected, 0.2% in July)
8:30 a.m. ET: Retail Sales Advance month-on-month, August (0.2% expected, 0.7% in July); Retail Sales excluding Auto month-on-month, August (0.1% expected, 1.0% in July); Retail Sales excluding Auto & Gas (0.3% expected, 0.9% in July)
10 a.m. ET: University of Michigan Sentiment, September preliminary (90.5 expected, 89.8 prior)