Shares of newly public companies, once one of the most popular investments on Wall Street, are beginning to slump following the failed listing plans of WeWork, which postponed its highly anticipated IPO last month, according to The Wall Street Journal.
On average, shares of technology startups and other companies that went public in the U.S. are trading about 5 percent above their prices at their initial public offerings, despite the 18 percent gain in the S&P 500 index, a reversal from earlier this year.
We Co., the parent of WeWork, was forced to postpone their IPO last month after prospective investors criticized the office-sharing company’s governance and big losses. Approximately $30 billion has been taken out from their expected valuation in anticipation of weak demand.
According to a Goldman Sachs research note, this year’s IPOs are expected to be the least profitable since the technology boom in the 1990s.
“Some companies became convinced that the public market would welcome them with high cash burn and long runways to profitability,” said Paul Hudson, founder and chief investment officer of Glade Brook Capital Partners LLC, a pre-IPO investor in Uber, Lyft, and We. “The reality is the public market rewards profitable companies that generate cash flows in addition to growth.”
When the IPO market rebounds, more companies are expected to stage direct listings, like Slack Technologies Inc. did in June, because of smaller banking fees. This, however, signals the theory that Silicon Valley believes that Wall Street has mishandled this year’s IPOs.