Lyft, Uber, WeWork, and on: From IPO Unicorns to Downed Horses
See how our analysis foresaw the "tides of the IPO market" turning -- last November!
by Nico Isaac
Updated: October 03, 2019
Talk about a delay! This chart of Uber shows why investors who hailed the ride-share company's highly anticipated IPO are still waiting for their bull driver to arrive.
Since its May 9 debut, Uber shares have plummeted more than 30% to record lows. According to one news source, the reason for the company's bearish re-route is "growing investor skepticism about recent IPOs." (Oct. 1 CNBC)
It goes without saying, this new wave of skepticism was completely MIA in the lead-up to Uber's IPO on May 9.
Then, the mindset of investors was uber-bullish, as these news items from the time recall:
- "Uber's IPO Could Be a Chance to Buy the Next Microsoft" (April 26 Barron's)
- "Uber Isn't Public Yet, But It's Already Nabbed a Bullish Analyst Call" (May 2 MarketWatch)
- "Uber is the 'Amazon of Transportation'" (April 12 Bloomberg)
But that was then. Uber is now just one in a growing herd of startups valued at $1 billion or more who have gone from soaring "unicorn" to downed horse post IPO. Topping that list includes Peloton, SmileDirectClub, Slack, Endeavor, WeWork (who scrapped its IPO plans altogether), and of course, Uber's smaller cousin, Lyft. As one October 1 Yahoo Finance! article confirms: "The tides are turning for the IPO market."
The truth is, they started to turn long before the unicorn brigade entered bear-market territory. Last winter, our November 2018 Elliott Wave Financial Forecast revealed a lurking danger in the current slate of billion-dollar startups prepping for their public debut; more than the presence of irrational ex-UBER-ance was the absence of earnings. Here, our November Financial Forecast wrote:
"According to finance professor Jay Ritter, 83% of companies offering shares for the first time in 2018 do not make money. The share of money-losing IPOs in 2000 was a shocking 81%. IPO investors are more tolerant of red ink than at any time in history... It is only in the final throes of a financial bubble that earnings actually become a detriment to rising share prices."
On the day of Lyft's IPO, our March 29, 2019 Short Term Update showed this chart of the company and stressed the catch-22 in "going public with no profits" --
"[It] shatters the dream that surrounds many of these 'hot' stocks, because now these companies must publicly report each quarter how much money they’ve made or lost. Nothing impacts a fantasy more than reality. The stock started trading post-IPO at 87.24 and was soon looking for a pickup."
From there, Lyft shares drove off a cliff, falling 43% to record lows.
Then, one month before Uber's May 9 debut, our April 2019 Elliott Wave Financial Forecast debunked the mainstream theory that the Scrooge McDuck-sized coffers of these "gig economy darlings" would spare them "wild price swings." Countered Financial Forecast:
"There may not be wild price swings, but only because the direction that the unicorn's shares will take will mimic those of Lyft, which was virtually straight down. One day, a bear market will return to investor's consciousness the fact that the unicorn is a mythical creature."
Flash forward to today, and the new onset of skepticism surrounding these unicorns. Writes an October 1 CNBC of Uber and Lyft's post-IPO slump:
"Both companies face increasing scrutiny from investors who are calling into question the billion-dollar market caps of large companies that recently went public."
The turning tide has already capsized IPOs. "2019 has seen the lowest number of IPOs and proceeds from IPOs this decade," October 1 Yahoo Finance.
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