2019: An IPO's Worst Nightmare

2019 was expected to be a huge year for the IPO. Companies such as Lyft and Uber caught the eye of many considering its residual effects on both Wall Street and Silicon Valley. Major losses have been the defining story of this year’s IPO Market. Peloton and Slack have followed suit and shown major losses. The effects of these losses have far reaching negative implications beyond these select companies. They are affecting the entire market and many investors are weary when considering future investments in companies launching an IPO. In turn, this is changing the strategies of companies considering going up on the public market.

Lyft and Uber were some of the most talked about IPO stocks in recent memory. The hype has quickly taken a complete shift into panic mode. Lyft has decreased 47% and Uber fell 24% since their issuing date. Lyft started hot, but the market corrected itself and sent the stock on a downward spiral. California labor laws are pushing to make Uber and Lyft drivers full time employees which will result in significant changes in the structure of the apps. Right now, 91% of these drivers ride for less than 20 hours per week, signaling that most drivers participate as a side hustle from their normal careers. Uber and Lyft announced that they will be challenging the law. If this law is upheld, however, they stand to lose a lot of money, which will likely increase the cost of rides, decreasing consumer appeal. This would negatively affect the demand, revenues, and stock prices of both companies. (Brown).

Uber and Lyft were not the only IPOs that struggled getting their feet off the ground; Slack has shown a decrease of 41.5% and Peloton fell 23.5% respectively. Slack first caught the interest of Microsoft back in 2016. Microsoft tried purchasing Slack, but the deal fell through, and Microsoft created Microsoft Teams to compete against Slack. Microsoft announced in July that they currently have 13 million daily users of Teams. On October 11, Slack announced that they reached 12 million daily users (Levy). The competition of the workplace platform seems to be the reasoning behind the rapid drop in value. Peloton’s main issues revolve around the company’s struggles to realize profits. Analysts predict that the company will not become profitable until 2023. Their gross profit margins fell from 44% to 42% this past year and as the millennials age, Peloton seems less appealing (Cohen). Although each company has its own flaws, they all raise some major concerns about the growth potential of each company.

The result of these IPO failures has led to a domino effect among many other companies looking to go public. Companies are deeming it too risky to enter the public market after seeing these company’s losses. In May, Endeavor Group filed to go public on September 27th. On September 26th, Endeavor announced they would be delaying this offering. They did not announce the reasoning behind the delay, but one might assume that the weak showing for 2019 IPOs was a major reason for the move. WeWork was forced to push back their IPO because of lack of investor interest. This lack of interest was mainly due to questionable management decisions and spending. Co-founder, Adam Neumann, recently resigned as the chief executive and the start-up has been scrambling for solidification in leadership. Since the delay, they have announced that they will be cutting 2,000 jobs and the current state of the company is in question (Gelles).

Robinhood is another great example of a company looking to go public that has delayed their decision because of the weak showing this year. This stock brokerage service made a name for themselves by creating a simple app-based platform targeting early staged investors. They hoped to differentiate themselves by offering zero-commissioned transactions, but may have lost their time window. On October 1st, Charles Schwab announced that they would be offering commission free trades. This sparked TD Ameritrade and E-trade to follow suit to compete with their rival by offering zero-cost transactions (Fitzgerald). Since these top online brokerage platforms are now commission free, Robinhood may have lost its opportunity as there is much less appeal to the app. The poor showing of the 2019 IPO market is a major factor why they held off and the delay may have cost Robinhood billions. The market creates openings and if these openings are missed, they may be closed for good.

However, 2019 was not a complete failure. Beyond Meat shot out of the gate, exceeding their IPO price by over 350% just six weeks after going public. The price has since corrected itself but the returns on the initial pricing are still nearly double. The company, a vegetable-based food source supplier has been taking major food chains such as Dunkin Donuts and Burger King by storm. 22.8 million Americans or 10% of the US Population follow a vegetarian-inclined diet, making Beyond Meat an interesting stock to follow as these trends continue (Vegetarian Times). We will need to see more struggling IPOs show turnarounds in order for companies considering going public to make the move. Historically, Quarter 4 the year before an election is a positive one for IPOs, so the performance of these stocks will be monitored closely as they look to set the tone for a more positive 2020.

Works Cited

Brown, Eliot. “Gig Economy in Crosshairs After Decade of Freewheeling Growth.” The Wall Street Journal, Dow Jones & Company, 13 Sept. 2019, www.wsj.com/articles/gig-economy-in-crosshairs-after-decade-of-freewheeling-growth-11568367002.

Cohan, Peter. “4 Reasons To Pedal Away From Peloton Stock.” Forbes, Forbes Magazine, 29 Sept. 2019, www.forbes.com/sites/petercohan/2019/09/27/4-reasons-to-pedal-away-from-peloton-stock/#1fe967213b91.

Fitzgerald, Maggie. “E-Trade Drops Commissions on Trades, Joining Schwab, TD Ameritrade in Brokerage Fee War.” CNBC, CNBC, 2 Oct. 2019, www.cnbc.com/2019/10/02/e-trade-drops-commissions-on-trades-joining-schwab-td-ameritrade-in-brokerage-fee-war.html.

Gelles, David, et al. “WeWork C.E.O. Adam Neumann Steps Down Under Pressure.” The New York Times, The New York Times, 24 Sept. 2019, www.nytimes.com/2019/09/24/business/dealbook/wework-ceo-adam-neumann.html.

Levy, Nat. “Slack Hits 12M Daily Users - Here's How That Compares to Microsoft Teams and Other Rivals.” GeekWire, 11 Oct. 2019, www.geekwire.com/2019/slack-hits-12m-daily-users-heres-compares-microsoft-teams-rivals/.

Vegetarian Times. “Vegetarianism In America.” Vegetarian Times, 16 Apr. 2008, www.vegetariantimes.com/uncategorized/vegetarianism-in-america.