It’s the summer of hell for IPOs as the mood turns sour despite record high markets.
IPOs started the year with great promise, but have fizzled on high profile disappointments from Snap and Blue Apron and the refusal of tech unicorns to go public and face lower valuations from a stingy investment community.
The latest debacle: a disastrous conference call from Blue Apron, which missed estimates on its first earnings report as a public company (a loss of $0.47 versus a loss of $0.30 expected), had fewer orders than expected, and had 9% fewer customers quarter-over-quarter, which the company said was due to lower marketing expenses but may also be due to operational issues moving to a new facility. Regardless, revenues in the second half will be lower than expected, and that was enough for the bears (this is already a heavily-shorted stock) to pile on.
The company, which had already priced its IPO at $10 at the end of June, well below earlier price talk of $15-$17, is now at $5.28.
Also this morning: coal producer Contura Energy was supposed to begin trading at the NYSE, but its IPO was postponed due to the dreaded “market conditions.” You can’t blame it on the stock market, there was likely far less demand than anticipated. They are producers of both metallurgic (steel) and steam (utilities) coal, and while demand for steel is still good demand for utility coal has been facing stiff competition from natural gas for many years.
Then we have the morning re-filing of millennial darling Yogaworks, which pulled its IPO in June and this morning announced they would try to go public in the next few days at a valuation 30% below what they were seeking a few weeks ago. There have been 7 or 8 other companies that have pulled their IPOs this year.
Where did it all go wrong? I called Kathleen Smith, whose firm, Renaissance Capital, provides research on companies going public and runs an ETF for IPO investors.
Smith’s first issue with this crop of IPOs: “Some of these companies should never have gone public.”
She listened to the Blue Apron conference call and was dumbfounded. “The real issue is that the company is having operational problems. We knew about the competition issues with Amazon and others, but this was a real surprise. This is a textbook example of what not to do as an IPO. You don’t miss expectations right out of the box. That is a big no-no.”
But there’s a bigger problem. Private equity has thrown so much money at these companies that many are living in a private-equity bubble and are shocked to find out the investing public is not so generous.