From one perspective, DoorDash is a bargain today. The same goes for Coinbase, UiPath, AppLovin, Oscar Health, Bumble and Qualtrics.
Indeed, if you pick nearly any 2021 technology IPO and compare its debut price to where it trades today, you will find that the market is offering yesteryear’s standouts at a massive discount. So much of a discount that it’s hard to not wonder if at least part of the reticence of the 2022 IPO market is not predicated on macro conditions, but the more specific — dare we say microeconomic? — awful performance of the public debuts that we saw last year.
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The declines in question are not small, and they are not merely extant when measured from all-time highs. We’re talking bad returns here from the perspective of any time frame.
Part of the issue is the simple fact that 2021 valuations were higher than what we see today. It is valid to handicap negative outcomes with pertinent fluctuations in the underlying market; that said, we often cannot provide enough handicapping to get anywhere close to eliminating the fact that so very many 2021 tech IPOs were, from a returns perspective, hot garbage once they were floated.
Floating hot garbage, it turns out, doesn’t sell, and thus the 2022 IPO market has been hit with both generally negative conditions and the fact that 2021’s IPOS resulted in more face-plants than success stories.
How bad was it?
Bad.
We are not treading entirely new ground today. In fact, at the very start of this year, CNBC noted that “IPO investors in a record-breaking issuance rush in 2021 have so far been disappointed by dismal returns.” Correct.
In the ensuing quarters, has the picture improved when we consider the post-IPO performance of 2021’s tech public offerings? Nope.
Per a recent PitchBook report, the value of VC-backed IPOs (what we generally consider to be the technology market when it comes to exits) had a few tough innings. Companies that went public in 2021 via a SPAC combination performed even worse, but even the traditional IPO market led to a lone line of lackluster losers.
In a sense, we should not be surprised that the 2022 underperformance of 2021 IPOs continues as the year rolls along. Interest rates have risen throughout the year, and unforeseen geopolitical issues have continued to cloud the economic outlook for much of the world. More expensive capital and less market stability? That’s not a recipe for investor confidence in new or recent issuances.
Think of 2022 as the revenge of the old — petrochemical companies are kicking maximum ass while tech companies suck air. In such a climate, did you really think that money-losing software companies would do well? Hell, you can get growth, profits, and shareholder return in an oil stock and at a cheaper multiple to boot!
Oof.
To put into context just how nasty the year has been, I collated a few data points for your delectation. They should be self-explanatory (IPO pricing data collated from this Crunchbase News piece):
- Qualtrics: Went public at $30 per share, traded as high as $48 and was worth $9.83 as of the close of trading Friday.
- AppLovin: Went public at $80 per share, traded as high as $116 and was worth $17.83 as of the close of trading Friday.
- Kaltura: Went public at $10 per share, traded as high as $10.44 and was worth $1.62 per share as of the close of trading Friday.
- Robinhood: Went public at $38 per share, traded as high as $43.36 and was worth $9.89 as of the close of trading Friday.
The list goes on. You could throw in Coinbase’s direct listing as another example of a company that started richly valued, traded high and then lost most of its value. The SPAC-led debuts are even worse than the above. Bird, for example, is a strident mess on stilts from a share-price perspective.
How can we tease apart the impact on the 2022 IPO market stemming from macro conditions, and, separately, from the sheer awful performance of 2021 IPOs post-listing? It’s a little tricky. Tech stocks have taken a pounding, but I would hazard that tech IPOs from last year did even worse than others in their industry. (Take Apple, for example. It traded as high as $182.94 last year and sat at $138.38 per share at the close of trading Friday. That’s a drop of a little over 24%. Qualtrics plummeted 67% from its debut price, while AppLovin, Kaltura and Robinhood slid 78%, 84% and 74%, respectively. And that’s not the decline from their all-time highs. That’s from the day they went public.)
That cannot have helped.
But the key issue to consider is that the combined effect of poor macro conditions and the dismal 2021 IPO crop made it impossible this year for outlier public offerings; even the strongest companies were not able to break through the twin issues of weak markets and recent tech IPO underperformance.
Making that point, we may get to see Instacart file and go public this quarter. But it will be the only major tech IPO to manage the feat this year if it does. I would bet you lunch that if the 2021 IPO crop had not been quite as miserable as it wound up being in post-debut performance terms, the sheer macro climate would not have been enough to preclude all tech IPOs this year. And yet.
My conclusion after looking at recent data, including the performance of individual public debuts from last year, is that tech sold a bunch of stuff last year at prices that didn’t make sense, and the market was like sure, sounds good. And when it turned out that all those prices were, in fact, bullshit, the ability for tech to talk up its own book went out the window. So perhaps no tech company deserved to go public this year. Maybe the upstart tech market ate all its good karma last year, leaving none left for 2022.
May 2023 be better. We miss S-1 filings here at TechCrunch+.
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