OK, it’s getting mildly disturbing in the land of one-time privately held unicorn companies turn IPO letdowns.
Amid the return of volatility to the markets in October, investors have chosen to inflict maximum pain on newly public companies with unproven business models and huge losses. The trading activity is such that Mr. Market appears to be saying several well-known names would be unable to survive — thanks to their tepid financials — a mild U.S. recession brought about the Trump administration’s trade war on China (among other factors).
How else could one view the bloodletting? It’s not simply due to WeWork’s IPO roadshow meltdown.
The poster child for this logic is SmileDirectClub (SDC). More than four, reputable brokerage firms initiated coverage of the braces and dental services provider on Monday with Buy ratings as post-IPO quiet period restrictions lifted. SmileDirectClub then came out on Tuesday to unveil its new dental lab in Austin, Tex. that will help it expand its manufacturing capabilities. The company will add 850 American jobs.
Despite this in flux of seemingly positive news, SmileDirectClub’s stock plunged 10% Tuesday along with a broader selloff in the markets. Trading at $12.14 by Tuesday afternoon, SmileDirectClub’s stock is 48% below what it priced at the day before its September 12 IPO on the Nasdaq.
SmileDirectClub falls in the camp of having a history of losses.
“The true state of the public markets [IPO related] is that it’s very weak,” CEO of iQ Capital Keith Bliss, a veteran of the investment banking industry, said on Yahoo Finance’s The First Trade. “There has been a lot of IPOs pulled over the last two weeks — small-cap, mid-cap and large-cap simply because investors are a little nervous. They are really off keel. They are uncertain on if they should make that investment.”
SmileDirectClub isn’t alone in feeling the early selling pain.
Peloton’s (PTON) stock price has plunged 24% from where it priced ahead of its September 26 IPO. It, too, has never turned a profit. Uber (UBER) and Lyft (LYFT) shares have each fallen close to 30% since their mid-May IPOs — no profits ever for these companies, nor likely are they in store within the next two years.
Even a profitable company such as Levi’s has been swept into the selling within buzzy new issues — the stock is down 13% this year.
The savings grace here is that experts say transactions in private markets continue to remain firm.
“Transactions on the private side are still quite robust and vibrant right now. As long as there is plenty of liquidity out there in private markets, which there is globally, I think you will see that segment of investment banking still be vibrant,” Bliss said.