A clutch of highly valued tech listings are finally launching, with the promise of potential returns apparently offsetting any red flags investors might have.
After years of speculation, stops and starts, many of the long-awaited public listings of tech unicorns are coming to fruition. Lyft was the first of these to pull off an initial public offering (IPO) in 2019, followed closely by Pinterest. The largest, and perhaps most highly anticipated, of the big tech IPOs is Uber, which kicked off in April.
Public listings have had a generally drab start to the year thanks to a government shutdown in the US, concerns about Brexit and low growth in Europe. But tech unicorns have been strangely immune to late-credit cycle anxiety and could yet turn 2019 into a record year. The battle is not yet won, however, as Lyft’s lacklustre aftermarket trading and questions around profitability and governance could nip the IPO renaissance in the bud.
After the disastrous post-listing performance of Snap in early 2017, other IPO hopefuls such as Uber, Airbnb, WeWork, Slack, Spotify and Pinterest wisely waited for the storm to blow over. Nevertheless, they still face the same questions. Despite skyrocketing revenues, none of the tech unicorns – including Snap – have ever turned a profit, prompting investors to question whether their business models are sustainable. Structural growth can make up for losses, but the danger of another disruptor coming in to displace the original disruptor is high.
Another red flag for investors is also one of the main attractions of big tech: so-called 'key man risk'. Tech entrepreneurs often inspire cult-like adulation, which is helpful in securing private capital as well as a consumer following – but public opinion can swiftly sour in the case of bad behaviour. Uber learned this painful lesson when founder Travis Kalanick was forced out amid accusations of inappropriate conduct and a toxic culture at the company.
The tendency of tech entrepreneurs to use a dual-class share structure, which allows them to sell shares in an IPO but retain the bulk of the voting rights, does little to assuage investor doubts. Nevertheless, the potential returns of big, liquid and super-high-growth share offerings continue to lure investors in.
