IPO Financial Nework
Current thoughts from David Menlow 03/26/19
I'm thinking about a song from 35 years ago that sums up the current state of the IPO market. I'll leave that to your imagination for the time being. Having said that, there is a seismic change that has hit the IPO market like a piano dropped out of 2nd floor window. The noise is the market's signal to pay attention to what is happening in front of it. That kind of a drop is noteworthy, because the piano will break into many pieces for everyone to see, but doesn't mean it is completely shattered. Those pieces are about to provide the legs to restore the IPO market in a fairly distinct way in 2019.
After the lull in the market for what seems like an interminable time of lackluster performance, the IPO market is about to go through a renaissance of enthusiasm. Leading off the pack is this week's offering of Lyft. Certainly the weaker of the two ride-sharing companies that are worth a second look, but Lyft is going to be the trailblazer for the return of the IPO market. However, this emerging interest in the IPO unicorns, is not a return to the early 2000s, but a concerted focus on the "bang for the buck" deals.
Flaws in the underpinnings of all these companies are everywhere, but investors realize they are at party for many other deals that about to hit the street in the upcoming second quarter. This is "herd mentality" once again showing the early phases of investors just wanting a piece of the noise. Lyft is going to provide it, but the timeline for holding will be ticking very loudly, marking an intensive focus on the exit door when already inflated valuations, face the thin air of reality down the road.
The song I mentioned is from Glenn Frey in 1984 entitled "The Heat Is On". It is worth it to look up the lyrics, as a better description of what lies ahead of us in the IPO, cannot be found. The list of hypersensitive IPO offerings that are going to hit the market is numerous. Alight, Uber, Air bnb, Postmates, Pinterest, etc. The list of underwriters will be lengthy for each one, but placement will be sloppy, because of the quantity of banks that are involved. Valuations are evidently not of much interest to investors, other than seeing headlines of what they are.
As an example, a few years ago, the market was saying that Uber would have difficulty coming to market with a $40 Bil market cap. Now we are seemingly comfortable with the talk of $120 Bil. Normal investors are saying "What is wrong with these people?". Smart investors know that focus is on these unicorns, and they have to be there to participate in what is a giant-sized appetite for these IPOs. We are expecting the underwriters to try and put some semblance of credibility into the pricings of these deals, knowing they all have a shelf life before the aftermarket follow through start to whither on the vines. We are at the beginning of this mini-cycle. Being involved in the IPOs at their IPO prices, are going to be crucial for your financial health. The music hasn't started playing yet, let alone be worried about it stopping and there is no chair for you. Even though "the heat is on", step outside for some fresh air once in a while, and manage your expectations properly.
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