IPO market turns shaky as investors say no to hype-driven firms

2019 has been one of the most-hyped years for IPOs in recent times, as many popular firms were getting set to hit the stock market. Leading the bandwagon of big names were ride-hailing rivals Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT) – both of which had disappointing public listings earlier this year.

Nine months into the year, the IPO market is dud. The latest victim of lackluster market enthusiasm was fitness equipment maker Peloton Interactive (NASDAQ: PTON), which went public yesterday at $29 per share, and ended the first trading day down over 11%. Another firm Endeavor Group Holdings, which is the owner of MMA tournament Ultimate Fighting Championship (UFC), was sent scurrying back to review its IPO plans.

Endeavor’s reservations are unsurprising, given the way the IPO market has recently been behaving. Its China-based rival Wanda Sports Group Co (NASDAQ: WSG), which made market debut in July, had to downsize its offer price to a modest $8 per share. Yet, the stock is currently trading at around half this price.

The primary reason for this is the shifting investor tendency to ditch hype-driven firms. Earlier, there was a general attitude to invest in the popularity of stocks, despite their balance sheets being hollow. With economies around the world slowing down and M&A activity taking a back seat, investors seem to have lost the appetite to take unnecessary risks.

READ: Major IPOs expected in late-2019 or 2020

While pricing a stock is already a tricky thing, the ignorance of underwriters towards this tectonic shift is partly responsible for the lackluster performance of most of the IPO stocks. If you look at it, all the dud IPOs – including Uber, Lyft, Peloton and teeth beautifier SmileDirectClub (NASDAQ: SDC) – are loss-making firms without a proper roadmap to profitability.       

WeWork, which was expected to have one of the largest offerings this years, postponed its IPO amid investor concerns on its mounting liabilities and losses. When there are IPO stocks like Zoom Video Communications (NASDAQ: ZM) that are already in the profitability space, it makes little sense of experimenting in a cloudy market.

Listen to on-demand earnings calls and hear how management responds to analysts’ questions