The first half of 2019 has seen a boom of IPO listings, with several highly anticipated listings of unicorns such as Uber, Spotify, Lyft and Slack. Slack was admitted to trading on 20 June, via a direct listing. In this regard, they followed the likes of Spotify, counting on a high enough profile to not require bankers to “sell” their shares via the traditional roadshow, and simply listed their existing shares. Slack has a large cash balance (circa $800 million), meaning they didn’t need to raise funds immediately, although don’t be surprised if they conduct a share issue to raise funds soon. Slack has performed well since its stock market debut, with shares currently 40% up from its reference price. Slack’s largest investors included Accel, Andreessen Horowitz, Social Capital and SoftBank.
Slack is only the latest in a string of tech unicorns to list in 2019, with several notable disappointments. Uber and Lyft are both still trading below their IPO prices. Overvaluation of Uber, its highly ambitious market definition, and a last-minute funding round before IPO may have set it up for disappointment. Lyft faces the same struggles in the competitive car sharing industry.
Uber and Lyft are hardly the first to sink below their IPO prices after the first day pop. Facebook sank 54% over the first four months after its 2012 IPO but is now trading at five times its IPO price. But correction after initial hype is not always the rule. For example, Beyond Meat has more than doubled its share price since listing. What sets Beyond Meat apart is its strong product-market fit in line with current trends, its innovation in a large market and its less crowded competitive landscape (at least for the moment).
Overall, 2019 has been a busy year for IPOs, and the market seems to have an appetite for more. The Renaissance IPO ETF, which invests in recently listed companies, has been climbing consistently, outperforming the S&P 500 for the past three years. It reached its highest point ever in June. Besides riding this wave, companies may be rushing to IPO before the 2020 US presidential election. After the 2016 election, IPOs seemed to halt as companies tried to wait out a period of global uncertainty. Additionally, recent economic slowdown may be perceived by companies as indicators of a possible recession in late 2019 or 2020. While some fear a tech bubble, we anticipate that companies with a strong product-market fit, sustainable business model and innovative and defensible IP will weather potential economic challenges.