This has been both a big year for IPOs, in terms of high profile companies coming to the public markets, and a disappointing one, since many of these companies have struggled in the after market. In this session, I look at the performance of IPOs collectively, and look it detail at seven IPOs from this year (Levi, Lyft, Uber, Pinterest, Beyond Meat, Slack and Peloton). I draw four lessons: 1. The IPO after-market remains a pricing game, drawing in traders and repelling investors, making mood and momentum the key drivers of price.
2. The initial pricing for IPOs is built on a shaky base, since investors are unclear about what peer group to use in pricing and the past pricing comes from VC rounds.
3. The share count in most young companies at the time they go public and in the months after is in flux, as RSUs and options come into play, making market cap extrapolations dicey.
4. Even though the IPO market is a pricing game, every young company eventually faces what I call a "Bar Mitzvah" moment, where it is asked to show a pathway to profitability. That is why it still makes sense to value these companies, even with the uncertainty about the future.
I value the seven companies on October 8, 2019, and update my investment judgments based upon the comparison to the price on that day.
Slides:
Blog Post:
Valuations
Levi Strauss:
Lyft:
Pinterest:
Beyond Meat:
Uber:
Slack:
Peloton:
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