Companies making their debut on the US stock market are getting a rough welcome, especially if they are losing money, casting a shadow over the calendar for initial public offerings for the rest of the year.
The surprise postponement of the WeWork IPO has underscored how confidence is eroding in the market both for companies looking to raise capital and investors.
A more discerning market for initial public offerings continued to punish Peloton Interactive Inc on Friday, a day after it began trading, as shares of the fitness startup fell 4% to $24.74. The company is now trading 15% below its Wednesday IPO price.
In the past, public market investors have typically expected companies to become profitable within 18 months or so of an IPO. This timeline has been relaxed with money managers eager to add businesses with fast-growing revenue to their portfolios.
Recent deals, however, suggest an uncertain economic outlook is pushing investors to be more selective about the loss-making companies they are willing to back.
Peloton reported rapid top-line growth of 110% during the fiscal year that ended June 30. But the company also showed negative operating leverage, with operating expenses surging 147% over the prior year.
Loss-making teeth-alignment company SmileDirectClub earlier this month became the first US IPO in three years to price above its target range and close down on its first trading day, according to research firm Renaissance Capital. The average IPO return in 2019 is now about 9%, down from more than 30% at the end of June and more than 18% about two weeks ago.