June 18, 2019

Breakingviews: Ride-hailing misses the U.S. IPO bus

by Breakingviews.

The most hyped initial public offerings of 2019 have performed about the worst. Among the pack of this year’s debutants that have a current market capitalization of at least $2 billion, ride-hailing outfits Lyft and Uber Technologies are rare laggards. Plant-based burger maker Beyond Meat is the top performer. Other winners for IPO buyers suggest investors see a bright future for many businesses – except perhaps the so-called gig economy.

Maybe it was inevitable that first-comer Lyft, now worth $18 billion, and the larger Uber, tipping the valuation scales at $73 billion, would fail to meet excessive expectations. Down a respective 15% and 4% from their IPO prices, there were few benchmarks to help investors size them up and the fear of missing out was palpable.

The companies’ underwriters got a good price for the companies and their insiders, but the slide in value may partly reflect a worry that profitability is a very distant prospect. If that skepticism extends to somewhat analogous businesses like office-sharing giant WeWork, which has filed confidentially for an IPO, they may have to temper their valuation expectations.

Yet the range of strong 2019 debuts suggests broad optimism. Beyond Meat, now worth about $9 billion – six times the value at which its IPO was priced – is a bet that health and environmental concerns will change the way people eat. Pet-supplies purveyor Chewy, up 59% on its first trading day on Friday, and millennial-targeted clothing retailer Revolve are all about e-commerce.

Cloud-services management and security are in the mix, as are video chatting, biomedical technology, financial data and trading, and even caffeine – in the form of the $4.5 billion Luckin Coffee, a Starbucks rival that is one of several newly U.S.-listed companies based in China.

Social-scrapbooking app Pinterest is there too – up 44% – as is plain old blue jeans maker Levi Strauss, one of the few not dependent on the internet, the cloud or apps that need both. The generally optimistic start for most of these companies may bode well for trendy email-replacement software producer Slack Technologies, which is planning a direct listing of its stock this week. As it’s raising no new cash, there won’t be an IPO price. But it’s still no bad thing to channel investors’ positive mood.


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