Ever since the Great Recession knocked out the stock market in the late 2000’s, it has been difficult for companies to raise money and go public. But times are changing, and with the help of our good pals on Wall Street, 2019’s Initial Public Offering market is poised to be the perfect get rich quick opportunity for the retail investor. Some recent notables include Snapchat (SNAP), Blue Apron (APRN), and the feared Tesla rival Nio Inc (NIO). In fact, if you had invested $10,000 in those remarkable firms at the opening bell, you would have a staggering $4,500 today. This year is also no exception, as Lyft (LYFT) limped to the finish line on its opening day of trading with a 10% drop from its IPO price. While Lyft retains the prize of being the worst IPO so far this year, history shows that we’ll have many more woeful IPO tales to examine as the year unfolds.
A proclaimed “Unicorn” by industry experts, Pinterest will make its market debut on Thursday, April 19. The company priced its shares late Wednesday night, and plans to IPO under the ticker “PINS” at $19. This would value the online pin board and scrap booking company at over $10 billion. In 2018, they filed a net loss of $63 million. Similar to the move made by Snapchat executives, Pinterest will offer dual-class shares, ensuring no voting rights to the anyone who isn’t an insider. The firm has never turned a profit, and investors welcome it with open arms.
Possibly the most hyped initial public offering this year is Uber Technologies. It’s time to rejoice if you missed out on Lyft’s once in a lifetime opportunity to turn $1,000 into $650 in just 2 weeks. Uber had a 2018 net revenue of $11.3 billion, and somehow managed to post a $3.3 billion loss for the year accordingly to GAAP (Generally accepted accounting principles). Uber’s valuation is set for $100 billion, and it doesn’t take a doctoral degree to understand that it might be a bit rich for a company that has never posted a profit. What we’ve seen so far has been merely a chain of small, preventable explosions acting as an ominous prelude to the Chernobyl that will be the Uber IPO. Uber is asking for the most capital while losing the most money, exhibiting the least likely possibility for growth, still reeling from its messy creation story and looking at a data set that conclusively shows ride sharing IPOs are not super hot right now. Uber will be oversubscribed in a matter of hours, it will pop immediately upon opening trading, dive like a Boeing 737 MAX on day 2 and then bleed out its value for months.
As efficient as some believe the stock market to be, more than 80% of the initial public offerings in 2018 had negative earnings per share. In other words, they’re unprofitable, and that doesn’t seem to be changing anytime soon. It’s the nature of the market for some of these companies to flop; venture capitalists and company insiders want a quick cash-out, bankers want a payday and investors want to be a part of the next “new new” thing. All of that is a recipe for cyclical disaster, especially when investors are more interested in getting into the action than buying a piece of a great business. So it really is not a question of whether there will be another big flop, only a question of when it will come and whether enough investors spot it in time to prevent them from losing their entire life savings. Happy investing.