Due to the sudden outbreak, unicorn companies may have to re-plan their IPO plans.
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Editor’s note: In 2019, a large number of unicorn companies that were expected to be listed, such as Airbnb, Robinhood, etc., chose to hesitate and decided to wait patiently until the market environment improves in 2020, and then take a more comprehensive approach. Go public. But the plan is not as fast as changes. In 2020, the sudden epidemic made the investment environment and the stock market confusing, even more complicated and worse than in 2019. Unicorn companies with the idea of going public will also face the matter of the open market temporarily. Shelved and dragged on and off … This article was translated from Medium’s article titled “Will Airbnb and Other IPO Hopefuls Still Go Public In the Middle of a Pandemic?” By Rob Walker.
Illustration: James Clapham
How long has it been since companies like DoorDash, Robinhood, and Madewell have taken the courage to say they want to go public? It is estimated that it was a hundred years ago.
But just a few weeks ago, we all set our sights on this seemingly dangerous market environment, and wanted to see which companies dare to venture to market. It seems that Robinhood, Instacart, Asana, and DoorDash, the much-hyped tech startups, are all competitors. It is expected that some of them will try to directly list (direct listing: that is, no new shares are issued, only existing shares are issued, no underwriters are involved, and shares held by employees are directly traded freely after they are listed in the capital market. Such as technology companies Spotify-Translator’s Note), rather than a public offering of new shares (traditional IPO). Perhaps the main thing is that everyone wants to know the legendary superHow the unicorn company Airbnb will stand out in this year’s most anticipated listing.
However, as recently heard about the market, the situation has indeed changed. In March this year, it is undeniable that with the outbreak of the epidemic, not only has it brought disastrous personal casualties, but also the extremely heavy economic cost the world has paid for this has also fully manifested, the bull market has been growing for 11 years Come to an end in a terrible way. The stock market plummeted, and many companies warned that their earnings would be lower than expected. Large-scale layoffs are expected in the future, and the entire industry is worried about being eliminated. Now, the so-called initial public offering (IPO) has become an anonymous market.
Think about Airbnb’s situation. At present, from airlines to hotels to online services, the market for travel products is being severely squeezed. Airbnb is no exception: a large number of travellers canceled their original plans, which is not only imminent for many Airbnb “landlords”, but also a crisis that cannot be underestimated for the company itself. Airbnb made money by drawing commissions from the landlord ’s income, but its spokesperson declined to comment on the company ’s IPO plan. He took out a press release published in September 2019, but the content stated that Airbnb was originally planning to Public listing in 2020.
Obviously, Airbnb is not alone now. Right now, people may feel that there will be no more companies going public in the short term. But take a step back and think about it. In fact, this period of time can make people stop and think calmly. I still remember that we have experienced IPO shortages before, such as the 2008 financial crisis and the period after the bursting of the Internet bubble in 2000. But how long will it take for a new company to be really brave to face the open market?
In general, no one will seize this opportunity to predict such things. But in mid-March, research and investment firm Renaissance Capital, which specializes in tracking the IPO market, said it “may be closed for several months.” Kathleen Smith, a head of Renaissance Capital, said that from several macro indicators, it is possible to judge whether Airbnb is likely to prepare for another IPO.
One of the indicators is the current low volatility. The Chicago Board Options Exchange’s Volatility Index (VIX), based on the S & P 500 Futures Index, measures the market’s expectation of possible volatility. To put it simply, traders want the index to be below 30, but after more than a decade of calm, the index broke this mark in February and is currently around 75. In this case, Smith believes: “It is impossible to conduct an IPO now. This situation will not change until the VIX index returns below 30.”
The secondAn indicator is that the stock performance of listed companies can be improved recently. Over the past month, Renaissance Capital ’s own new listed company ’s IPO index (which became the basis of its exchange-traded fund) has fallen by 31%, even worse than the S & P 500 ’s 24% drop over the same period. Investors want to see this number show an upward trend in a sustained period, such as a month.
Or just optimistically, even if investors want to get a return from the IPO, this does not mean that the current timing is suitable for any particular company in any particular industry. Let ’s take a look at some of the highly anticipated IPOs this year:
Tourism
Let ’s review Airbnb. In the 2017 round of financing, the company was valued at US $ 31 billion. It seems to be a very attractive candidate for listing. At the time, there were rumors that the company was considering direct listing so that it could Bypass investment bankers and let insiders sell shares directly to investors. Last year, an article in the New York Times reported on internal pressures faced by Airbnb employees. They asked the company to go public as soon as possible, mainly because some employees ’equity will expire in November this year (Airbnb has issued two shares to employees before , Which will expire in November this year and mid-next year respectively, so employees worry that if the market cannot be launched as early as possible, their stocks will not be able to cash-Translator’s Note). Therefore, the stakes are quite large. But Smith pointed out that Airbnb’s price may fall for a period of time relative to its peers and the entire travel market (and related companies’ stock prices). Furthermore, imagine a person who is about to travel—fairly or not here—will trust the hotel chain more than the availability of a homestay on Airbnb for providing a clean, virus-free room. Company co-founder and CEO Brian Chesky told employees in a recent company memo: “The tourism industry will rebound sooner or later, but it is unclear how long it will take. According to reports, Now Airbnb is considering another round of financing for private investors.
Financial Technology Industry
Another company that originally planned to go public a few months ago, but now hopes to be slim, is Robinhood. Robinhood is an app that provides stock trading services. Its promotional slogan is dedicated to democratizing market access, but it has experienced severe downtime in the recent period of strong shocks, which is precisely the most urgent for customers. I hope it can work normally. More broadly, after the bull market crash, the idea of investing in the stock market may have been shelved by many people.
Express delivery industry
The current potential customers most likely to conduct an IPO may be the express delivery industry, especially Instacart and DoorDash.Under the government ’s suggestion—or directly the law—effectively ended the possibility of eating out in many places. In this case, restaurants that had previously complained about the high handling fees for takeaways, and now offer takeaway delivery Services (DoorDash’s expertise business) may become their last hope for survival. In this segregated world, grocery delivery (Instacart’s specialty business) is clearly more attractive to those who can afford it. However, as all states in the United States are implementing asylum orders, it is difficult to say whether this situation will continue in the future. And at the same time, the relationship between the express delivery industry and many gig economy workers has become more tense, and it is likely to face the liquidation of labor in the future. Both Instacart and DoorDash announced that they will provide “financial assistance” to couriers who have been quarantined or diagnosed as Covid-19. But this does not solve the problem in the end. Before any public listing attempts, they may all need a clearer solution.
Grocery industry
When other industries are faltering, grocery chains have been struggling to meet market demand. Another company we think has potential but has been suspended from listing is Albertsons. In fact, it submitted IPO related documents earlier last month. But this does not mean that it must raise funds in the short term-in fact, the current timing looks very bad-but we all have to wait and see how the market reacts to the grocery industry during the outbreak. Barclays analyst Karen short said in a recent research report that in the short term, we may see that the $ 100 billion left for restaurant consumption in the past began to flow to the grocery store market. But in the long run, falling demand and oversupply may eventually squeeze profits. Xiao wrote: “The grocery industry benefits at the front end of this cycle, but will face certain challenges at the back end.”
Retail
When consumers are scared of physical space, or are simply isolated, it is not surprising that the traditional retail industry has been hit. From Apple to Crate, from Barrel to Aeropostale, these familiar companies have announced that they will be closed for at least a few weeks. Trend denim brand Madewell (affiliated with J. Crew) has announced that its IPO plan will be temporarily shelved in early March (at the time also announced its relatively “strong” fourth quarter results, providing an alternative to explore the listing Chance), but since then, it has been difficult to see what happened, which makes the public market look more attractive. After all, no one is currently out, and no one has tidied up his wardrobe because of a video conference call.
Health care industry
Finally, there is a technology-centric health care startup OscaR, it recently became the focus of news again because of the online tool used to locate the Covid-19 test site, which looks pretty good. And Jared Kushner, brother of Oscar’s co-founder Joshua, is also a well-known advisor to the Trump administration, which obviously helps the company. But these alone cannot make this company an important IPO candidate … but it has indeed become a hot topic these days.
In fact, there is another factor that will complicate the final return of the IPO market. Smith’s company has tracked potential IPO candidates and has also found many “falls” in recent months. In this regard, she said: “The pressure is really increasing.” Valuation reduction (such as the mattress company Casper) or the listing plan to collapse (such as WeWork), these all mean that when the epidemic and oil price wars sweep the stock market Has begun to become vulnerable.
Smith suspects that as the IPO stalls, valuations in the private market will shrink further. But in the end it always ends. She said: “There are some very powerful and attractive companies in this era. It feels like the death valley era, just like the oasis is there, but you can’t see it yet.”
Translator: Hailey