As US markets continue to tumble, a number of companies must be thanking their lucky stars they got their flotations away last year.
One of the telltale signs of a bubble is a spate of overpriced initial public offerings (IPOs), and 2021 was a bumper year, with 1,051 companies floating in the US – an all-time record.
Of those, 148 of the companies that floated have halved in value and 15 of them have lost four-fifths of their value.
Among those that have halved in value is Robinhood Markets Inc (NASDAQ:HOOD), the stock trading and investment app firm that was – for a while at least – beloved of the “meme stock” investors on Reddit.
Floated in July 2021 with a US$32bn valuation, the shares have lost two-thirds of their value since then leading to the ignominy of its founders, Vlad Tenev and Baiju Bhatt, being ejected from the billionaires club, according to Forbes, the magazine that likes to keep track of the fortunes of the filthy rich.
At one time, the co-founders were estimated to be worth more than US$2bn and while it is unlikely that they will go hungry following the share price, investors who backed the flotation are likely to be angrier than the Sheriff of Nottingham after hearing Russell Crowe’s accent in Ridley Scott’s Robin Hood film.
Cazoo hits a bum note
Another high-price IPO that has turned into a car crash is Cazoo Group Ltd (NYSE:CZOO), the online car retailer that came to the market in late August via a special acquisition company.
At the time of its flotation, the company was valued at US$7bn or so. It is now valued at US$3.13bn.
The valuation caused much head-scratching at the time, as did the enthusiasm for online rival Cinch. London-listed Pendragon Group (LSE:PDG) apparently sells more cars online than Cazoo and Cinch combined, and yet its stock market value is less than £300mln.
The Daily Mail & General Trust (DMGT) was a backer, owning 21% of Cazoo and the slump in the value of its stake, and the concomitant effect on its share price might be one reason why controlling shareholder Lord Rothermere took DMGT private this year.
Being a publicly listed company is not always a good thing, especially when you don’t need the stock market listing to raise money. DMGT doesn’t; Cazoo does as it needs to spend to establish a “moat” against competitors and potential new entrants to the market.
2019, when the hype was hyper
Last year may have been a record year for IPOs but 2019 seems to be the one that featured the most high profile flotations and few of them have been unmitigated successes for those who bought in early doors.
Take Peloton Interactive (NASDAQ:PTON), the overhyped exercise bike maker, which floated in September 2019 at US$29 a share giving it a stock market valuation of US$7.7bn.
The shares back-pedalled furiously on the first day of trading, shedding 11%. The stock stayed in the high twenties until March 2020, the time of the first lockdowns in the western world, whereupon the share price rocketed to US$151.72 towards the end of 2020 on the back of soaring demand.
At the time of its flotation, it was described as “the Netflix of fitness” (whatever that is); ironically, perhaps, it waxed during the lockdown in much the same way as Netflix and like the streaming service it has found life a lot tougher since lockdown restrictions were eased and the shares are back more or less where they started, at US$29 a share.
Does cycling seem like too much hard work? Get a cab!
Lyft Inc (NASDAQ:LYFT) and Uber Technologies Inc (NYSE:UBER), two taxi-hailing app companies, both floated in the US in 2019 to much ballyhoo.
Lyft was first off the rank, floating in March 2019 at US$72, giving it a market capitalisation of US$24.3bn. The shares are now worth half that.
Meanwhile, Uber, which prior to its IPO was valued as high as US$120bn by some analysts despite the company cheerfully admitting it might never make a profit if governments around the world wised up to its dubious employment practices, finally made it to the market in May with a valuation of US$84bn.
Its shares suffered the biggest first-day fall in percentage terms of any flotation up to that point in US stock market history.
Floated at US$45, you can now buy Uber shares at US$35 a pop.
Sandwiched between those two high-profile flotations was the IPO of Pinterest Inc (NYSE:PINS) in April 2019.
The social media company also admitted it might “never achieve or maintain profitability” and floated at US$19 a share, after previously indicating to the market an IPO price of between US$15 to US$17.
The digital scrapbooking site, like Peloton and Netflix, had its salad days during the lockdown, rising to just short of US$90 in 2021 but it is now down to US$29, which at least is a very handy increase on its flotation price.
All SPACed out?
Not all flotations are horror shows, however, so let’s give a tip of the hat to Digital World Acquisition Corp, which is up 594% since floating in September 2021.
What does it do?
Er … nothing, as it happens. It is a special purpose acquisition company (SPAC), sometimes referred to as a blank cheque company.
It is sitting on a pile of money waiting for the chance to effect a merger or takeover.
In TRUMP's orbit, investing in Trump Media & Technology Group is being cast as a way to curry favor while he mulls a 2024 run.
ROY BAILEY, the Trump fundraiser/lobbyist is simultaneously soliciting investments in the co. & donations to Trump's super PAC. https://t.co/oZipyBWTxa
— Kenneth P. Vogel (@kenvogel) January 20, 2022
“While we may pursue an initial business combination target in any business or industry, we intend to focus on combining with a leading tech company,” it says on its website.
Perhaps it will invest in alarm bells. I can hear one ringing now, as it happens, as it apparently plans to merge with Trump Media & Technology Group. Yes, that Trump and that media group – the one that is going to set up a rival social network just so the Donald can peddle his alternative truth to his acolytes.
In other words, the future is orange … but it would be interesting to revisit in two years to see whether the SPAC is still riding high.