Hoping for an investment in an initial public offering to post multiple returns in a short period of time despite having poor financials is a perfect example of the greater fool theory. Assuming that one can buy and then, later on, sell at a higher price can be as difficult as deciding if next week will be a better time to buy diesel and fill up a truck’s gas tank. In addition, eager IPO bidders during the debut day have already lost to early investors that planned ahead of time to dump some of their initial investments and realize gains.
With the exception of the select few that have taken their newly found investors to new highs, some of the very widely anticipated IPOs have poorly performed since going public.
Fake meat manufacturer Beyond Meat Inc. (BYND, Financial) has nearly tripled its stock price, and then some, since going public. Similarly, cloud service companies CrowdStrike Holdings Inc. (CRWD, Financial) and Zoom Video Communications Inc. (ZM, Financial) have gained nearly 50% each since their market debuts.
Meanwhile, ride-sharing company Uber Technologies Inc. (UBER, Financial), which was valued at $120 billion in private markets, is valued at around $57 billion currently. Competitor Lyft Inc. (LYFT, Financial) was eyeing a $20 billion to $25 billion valuation when it went public, but the stock is now nearly 40% off that target. Uber has dropped 30% from its peak, while Lyft has lost 44%. Both ride-sharing giants are projected to deliver hefty losses this fiscal year.
Cloud-based workplace solutions provider Slack Technologies Inc. (WORK, Financial) is down 29% from its IPO high. The company reported 67% sales growth with a $38 million loss in its recent quarter. It anticipates a $200 million loss in this year’s operations.
Chewy Inc. (CHWY, Financial), an online pet store, has fallen 23% since its debut high. To a lesser degree, Pinterest Inc. (PINS, Financial), a social media company, is down 5.6% since its IPO high. Both companies expect losses for the year.
Of course, investors have noticed companies that were already profitable before going public and have more than adequately rewarded those stocks thereafter. For instance, Zoom’s CEO said, “What a crazy valuation,” after witnessing the stock climb 80% during its debut back in April. Zoom expects to generate somewhere between $0 million to $3 million this fiscal year.
Furthermore, figuring out when to hold and to sell gains (if any) can require a lot more discipline compared to a buy-and-hold investment strategy. A speculator only looking for gains would probably not have lasted the wild rides brought by some of the public market debutants.
Social media company Snap Inc. (SNAP, Financial) lost 80% of its value following its IPO before quadrupling its share price this year. What changed? Some investors have begun to realize Snapchat can stand up to Facebook Inc.’s (FB, Financial) Instagram.
Not all stocks, however, have been able to make a strong comeback. Meal-kit delivery service Blue Apron Holdings Inc. (APRN) has fallen 95% since its IPO, while home security provider ADT Inc. (ADT) has tumbled nearly 63% since its debut. Cloud-based services company Box Inc. (BOX) has lost 40% since its market debut, but said it will be able to deliver profit this fiscal year, excluding certain costs.
Disclosure: Long Facebook.
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