NEW YORK: Companies making their debut on the U.S. stock market are getting a rough welcome, especially if they are losing money, casting a shadow over the calendar for initial public offerings for the rest of the year.
Venture capital firms and other backers of many of these high profile"unicorns" - companies valued at US$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.In the past, public market investors have typically expected companies to become profitable within 18 months or so of an IPO.
Loss-making teeth-alignment company SmileDirectClub 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.SmileDirectClub is the worst performer among US$1 billion-plus IPO deals, with its stock down 43per cent since its debut earlier this month, according to Dealogic.
In the United States, much of the attention in the third quarter has focused on a deal that failed to come to fruition - the planned IPO of WeWork parent We Company. Home rental giant Airbnb has said it plans to list its shares in 2020 but provided no details and is widely expected to do a direct listing to go public. In a direct listing no new shares are created and investors can sell their stakes while saving millions of dollars in underwriting fees.
"It will be a dialogue among bankers and boards and senior management teams where they say, 'these were isolated and not comparable,' or say 'we have a sentiment shift and we need to be more conservative and use a different strategy,'" said David Ethridge, U.S. IPO services leader at audit firm PwC.While WeWork's stock never made it to the market, it did float a US$669 million junk bond in May 2018, and that plunged to near a record-low price on Friday.
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