WeWork is a symptom of a disease that may not have a cure
The spectacular rise of the proposed public offering to WeWorks parent company We Co. shows that the public markets are more savvy than private investors when it comes to buying the profits with high-risk, high-risk unicorn companies that are marketed as tech companies.
The public market's response to the latest batch of these mega-private valuation companies? One company, "No thanks."
"The Street has got some kind of outdated idea of hope," said Daniel Morgan, senior portfolio manager at Synovus Trust Company. "I don't think [the IPO window] is closed, but there must be more deals like Zoom
ZOOM, -5.28%
and Pinterest
PINS, + 0.90% ,
where you have a light at the end of the tunnel … You must have a [business] model that is ultimately profitable. ”
Read also: How the IPO market is pushing growth at all costs to private companies.
The Apparent Tide of Infinite Loss at We, Uber Technologies Inc.
UBER, -0.70%
UBER, -0.70%
Lyft Inc.
LIFT, -2.19% ,
and Peloton Interactive Inc.
PTON, -0.31%
has become a problem for investors, along with corporate governance issues in companies such as Vi and Peloton.
Before We Co. completely curtailed its stock exchange listing, the office-sharing company planned to publish three share classes, ensuring that majority control would remain with founder Adam Neumann, who resigned last month as CEO, but still not executive chairman. As a private company, we had a valuation of $ 47 billion at the time of the last funding increase. But ultimately, the bankers couldn't disclose them worth $ 15 billion.
"I think the message is that a way to be profitable that doesn't require magical thinking," said Lise Buyer, founder of Class V Group, a consulting firm that advises business management on the process of going public. "So does corporate governance, and at what valuation it is offered."
Zoom Technologies, a video streaming service, and Pinterest Inc., a social networking and photography network, as Morgan from Synovus pointed out, have an actual technology product. But the biggest losers in the IPO market in recent months beyond We Co. are companies that claim to be technology companies but really use technology to improve a product, such as a Uber car service and
UBER, -0.70%
Lift, Peloton training bike, and Fiverr International Ltd.
FVRR, + 0.59%
a freelance job-seeking hub that has branded the word concert.
"The market is trying to sniff out the truly disruptive companies, and it rewards those who are able to grow robust while still maintaining margins," said John Dodd, chief investment officer at Catalyst Private Wealth in San Francisco. "We've also seen that the market is hammering out some & # 39; tech-enabled & # 39; companies that can leverage technology for growth, but really don't deserve the multiples that analysts gave them."
Uber, Lyft and Fiverr are all considered concert companies, with their network of contract workers, a business model that is under attack by lawmakers and litigation. Last month, California passed a bill that would require Uber and Lyft to treat their contract workers as employees. The bill will come into force in January, but both companies have so far ignored it.
Investors have been clear on how they feel for tech-small companies without profits. Lyft, which was released in March, has seen the shares overtake nearly 50% and now trades at a market share of $ 12 billion, compared to the latest valuation as a private company of around $ 15 billion.
Since its release in May, Uber's shares are down about 30% and it has a market share of around $ 51.8 billion, compared to the most recent private company valuation of around $ 76 billion. Peloton, which has been trading for about a week, is down about 10%, with a market share of around $ 7 billion, higher than the latest $ 4.1 billion funding round.
Renaissance Capital, which tracks IPOs and operates listed -traded funds, noted that 39 deals raised $ 10.1 billion in the third quarter, led by healthcare and technology. The next really big multibillion-dollar valuation deal is expected to be the home distribution company Airbnb and Palantir Technologies. But while Airbnb is still expected next year, Bloomberg reported last month that the money-losing data analytics company is looking for "substantial" financing from private investors, a move that could delay its stock exchange listing by two or three years.
However, Silicon Valley venture capitalists seem to be trying to push back against the valuation connection. They held a summit on Tuesday attended by many private companies looking to go public. According to a Reuters report the summit discussed the benefits of direct listings, the Slack Technologies method
WORK, + 1.57%
used to go public and avoid Wall Street investment banks. Airbnb, which is now said to be profitable, is expected to be published with a direct listing.
One of the Summit's organizers, Benchmark Capital General Partner Bill Gurley, described the banks as "fleecing" companies in their stock by pricing the deals too low to secure a large first-day pop, which is money left by the companies' tables, Reuters reported.
Nevertheless, companies that look at direct quotes still allow the market to decide on their valuation, and if they are another faux-tech company, or have no way to make a profit, the market response is likely to be severe.
Whether the recent events will change how other big names, high-value deals or not going forward in IPOs is uncertain. Over the past decade, the companies have waited much longer to go public, opting instead for round after round of private capital.
It probably won't stop anytime soon, as long as the tap continues to flow. But when they finally get ready to go public, companies with good growth and a clear path to profitability should prevail, while the wannabes are likely to be penalized.
