The past week has been fraught with headlines suggesting Uber’s lackluster IPO is proof that the IPO market has passed its peak. Broadly, the narrative has been that Uber’s IPO performance suggests that most unicorns are typically overvalued by the time they go public, despite the company having raised $8 billion in its offering. We would posit that this narrative is at best overstated and at worst premature.
Year-to-date, 2019 has been a blockbuster year for late-stage VC-backed company IPOs. This year, we’ve seen seven companies that priced their IPOs with a cumulative valuation over $123 billion. Specifically, our tracking criteria is formerly VC-backed, U.S. headquartered companies with publicly available preferred share prices that listed on US exchanges. Most recently we saw Uber’s historic IPO that, by most all metrics, was a disappointment. In our view, Uber’s early performance may not be indicative of future performance, yet the few days trading on public markets has produced strong criticisms by venture ecosystem-company critics. To determine if data tracks this hypothesis, we analyzed IPOs with the above-listed criteria since June 1, 2018.
The subset of companies has appreciated in value an average of 67 percent and a median of 29 percent from IPO pricing. It appears public investors are not broadly concluding these often loss-generating companies are overvalued, but are instead weighing their investment considerations on the individual merits of the companies and the strong growth prospects they possess. Of course, we can’t turn a blind eye to the fact that the two largest IPOs of the past twelve months, Uber and Lyft, appear on the bottom half of the chart. However, it is no coincidence that these two companies operate in the same, very specific sector. Perhaps their poor performance is not necessarily indicative of investors’ appetite for unicorn companies, but instead is telling of the work the ridesharing industry has left to do to win over public investors. After all, Lyft and Uber came to public markets with a combined $4 billion in losses last year.
Almost equally important to consider is how share prices for this set of companies have changed since they were still private. The abundance of available venture capital funding has created an environment where companies are able to stay private longer, as they attempt to disrupt or create new markets. This environment has helped fuel the rise of secondary markets, as employees and early investors look for avenues to realize the gains they have achieved. Below we show how share prices for the same subset of companies have changed from each of their last private financing round to market close May 17th. We acknowledge that for every company that makes it to this stage of development, there are many more that failed. That said, the percentages below help illustrate why this asset class has garnered so much attention and brought the rise of deep-pocketed investors like SoftBank.
We’re eager to see how the remainder of the year will play out for the IPO market. Despite Uber and Lyft’s performances, every indication suggests heavy-hitters including Slack, Postmates, The We Company (WeWork), and Palantir are staying on course to complete their public offerings. It’s clearly too early to estimate how these offerings will perform, but public investors have shown they have a strong appetite for growth — something these companies tend to have in abundance.
This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.
Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.
This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.
The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.
Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.
This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.
Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.
Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.
Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.
SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.
Copyright SharesPost, Inc. 2019. All rights reserved.