The surprise postponement of the We Work IPO has underscored how confidence is eroding in the market both for companies looking to raise capital and investors.
A more discerning market for initial public offerings continued to punish Peloton Interactive Inc PTON.O on Friday, a day after it began trading. Shares of the fitness startup closed down 2% at $25.24 and are now off 13% from their IPO price. The company is now trading 15% below its Wednesday IPO price.
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Before trading began on Friday, five of this year’s eight deals of $1 billion or more were trading below their IPO price, according to research firm Dealogic. On a broader scale, only about 27% of the 112 deals of $100 million or more were trading below their IPO price.
Venture capital firms and other backers of many of these high profile “unicorns” – companies valued at $1 billion or more in the private market – had a higher tolerance for the path to profitability, but eventually they wanted to monetize their stakes.
INVESTORS GET MORE SELECTIVE
In the past, public market investors have typically expected companies to become profitable within 18 months or so of an IPO. This timeline has been relaxed with money managers eager to add businesses with fast-growing revenue to their portfolios.
Recent deals, however, suggest an uncertain economic outlook is pushing investors to be more selective about which loss-making companies they are willing to back.
Peloton reported rapid top-line growth of 110% during the fiscal year that ended June 30. But the company also showed negative operating leverage, with operating expenses surging 147% over the prior year.
Loss-making teeth-alignment company SmileDirectClub SDC.O this month became the first U.S. IPO in three years to price above its target range and close down on its first trading day, according to research firm Renaissance Capital.
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