London Daily

Focus on the big picture.

The struggling IPO class of 2019 could be facing another wave of selling soon

The struggling IPO class of 2019 could be facing another wave of selling soon

Lock-up periods are expiring for new IPOs, which could introduce a new layer of pressure for some already struggling stocks this year.

Shares of 30 recently public companies become eligible for selling between now and the end of this year.

Analysts say that could pressure already struggling IPOs’ performance and dissuade other start-ups from entering public markets this year.

“This does impact the stock price,” says Larry McDonald of research firm “The Bear Traps Report.”

Lock-up periods are expiring for this year’s IPO class, which analysts say could introduce a new layer of pressure for young companies.

Founders, employees and some early private investors who bought in before a company goes public are usually restricted from selling for between 90 and 180 days. Uber, Pinterest, Zoom and others are approaching that expiration date between mid-October and the end of the year.

A flood of selling could weigh on already struggling IPOs and dissuade other start-ups from entering public markets this year, according to analysts. It’s also a reason some in Silicon Valley are lobbying for direct listings, which don’t have the same selling restrictions.

“As lock-ups expire, some of that shortage of supply goes away,” said Nick Colas, co-founder of DataTrek Research. This flood of shares could put pressure on stock prices, he added.

Uber has struggled since its public debut with shares down roughly 35% since. The ride-hailing company is by far the biggest of the newly public companies with shares unlocking in the coming months. Private markets are often opaque, and estimates vary - one by research firm “The Bear Traps Report” puts the total Uber shares unlocking closer to 763 million, worth $22 billion. The same firm says roughly $31 billion worth of public company shares are unlocking from now until the end of this year.

Others have fared better though: video-conferencing start-up Zoom is trading at more than double its IPO price, while Beyond Meat has more than quadrupled in value. Pinterest is up more than 30% since its IPO.

If founders decide to sell around the lock-up date ending, shares flood the market, which DataTrek’s Nick Colas said can be an added drag on stock prices. Colas said early private investors are likely to sell regardless of an IPO’s performance so far this year.

“Their job is to get the company to the private markets, then to sell,” he said. “Venture capitalists are going to sell into lock ups because they have a huge investment in the assets and because their cost basis is so low — they still have a big gain even if the IPO hasn’t performed.”

That can exacerbate a stock dip if people see “smart money” like venture capital selling, he said, creating a false narrative that investors are getting out because a stock is underperforming. In this case, they don’t have much of a choice, because “the job of a venture capitalist is to get their money back, their investment back, and move on to the next thing.”


Employee pressure


Employees often have stock options to buy shares below the IPO price. Tech engineers, for example, might sacrifice stability of a Google or Amazon for a stake in a young company that can pay off big in an IPO. As these companies stay private for longer (a decade in the case of Uber), employees are ready to get some liquidity by IPO day.

“The average employee probably has the vast majority of their personal wealth in stock,” Colas said. “Prudent financial management says you want to diversify - so selling is not really optional.”

The dot-com bubble offers a cautionary tale. Shares of internet companies ran up because there was a shortage of stock. As lock-ups expired, that shortage went away, and public investors went from being able to buy 5% of the company in public markets to buying 30%, 40% or 50%, Colas said. Still, today’s IPO market doesn’t have the ability to rock bellwether tech names that dominate the S&P 500′s market cap.

“If a bunch of IPOs don’t work, it doesn’t mean much for Google stock or Microsoft stock,” Colas said.

Larry McDonald, founder and editor of research platform “The Bear Traps Report,” pointed to Facebook as a more recent example. Shares of Facebook dropped 4% in 2012 as companies were suddenly allowed to sell 230 million shares six months after the lock-up period ended.

“The market wasn’t that great to begin with, then there was an immediate impact from that lock-up,” he said.

McDonald said this may affect the future IPO window, since the psychology of going public is often driven by how recent stocks have performed.

“This does impact the stock price, and could affect one of these start-ups that’s looking to go public and saying ’wow - there’s even more pressure on the stock … I’m going to wait until 2020 or put off an IPO even further,” he said. “It incentivizes a CFO to put it off until next year.”


Direct listings


The lock-up issue is one reason Bill Gurley, partner at venture firm Benchmark, and others have rallied around direct listings. The venture capitalist said on CNBC in September that the IPO process was a “bad joke” for Silicon Valley. Gurley gathered more than 100 CEOs of late-stage private tech companies, along with another 200 or so CFOs, venture capitalists and fund managers for an invitation-only event in San Francisco called “Direct Listings: A Simpler and Superior Alternative to the IPO.”

Mark Goldberg, partner at Index Ventures, said with direct listing there is no lock-up period, “so buyers and sellers can meet on day one of trading without any distortion - it’s much cleaner.”

“The money currently trapped in lock-ups weighs heavily on recent IPOs; even if current investors decide to hold beyond the lockup, the public markets are forced to guess which direction they will go,” Goldberg said. “That uncertainty creates volatility. A direct listing helps a company find its financial equilibrium faster.”


‘Short-term headwind’


Lyft’s lock-up ended on Aug. 8. While shares held up that day, the stock has dropped roughly 40% since the lock-up expiration date.

Tom White, senior research analyst at D.A. Davidson, said Lyft’s weakness was more about general “de-risking” in the market as opposed to the lock-up expiration date.

“I generally think of these expirations as more of a short-term headwind for a newly public company’s shares,” White said. “For Uber, as in Lyft’s case, given how long it was a private company, I suspect some of the early investors are sellers of the stock effectively at any price.”

McDonald echoed that sentiment and said IPO market weakness is more about equity investors shunning risk in search of defensive names, especially as trade war uncertainty drags on. IPOs, for the most part, are squarely in the risk category.

“Every single nook of the market that is risk-oriented is getting nailed right now,” he said. “It’s just an indicator of what the market is going through.”

Newsletter

Related Articles

London Daily
0:00
0:00
Close
Unelected PM of the UK holds an emergency meeting because a candidate got voted in… which he says is a threat to democracy…
You Are So Beautiful
Rob Schneider explains California reparations legislation.
Postmodern Jukebox European Tour Version
Who knew badminton could get so intense?
An old French tune (by Georges Brassens) Pomplamoose ft. John Schroeder
Farmers break through police barriers in Brussels.
Sattahip Motor Show 20
London's Iconic British Telecom Tower Sold To Become Hotel
SONATE AU CLAIR DE LUNE - Moonlight sonata
Ukraine Arrests Father-Son Duo In Lockbit Cybercrime Bust
A kiss to build a dream on
US Offers $15 Million For Info On Leaders Of Cybercrime Group Lockbit
Wonderful Tonight - Eric Clapton (Boyce Avenue acoustic cover)
Russia Claims UK Cultural Agency Spied for Ukraine
Mean Blues
Apple warns against drying iPhones with rice
La Chansonnette
Alexei Navalny: UK sanctions Russian prison chiefs after activist's death
Pattaya Addicts
German economy is in 'troubled waters' - ministry
Franz Liszt - Liebestraum - Love Dream
In a recent High Court hearing, the U.S. argued that Julian Assange endangered lives by releasing classified information.
Dream a little dream of me
New video
Unchained Melody sung like you've NEVER heard!
Tucker Carlson says Boris Johnson wants "a million dollars, in Bitcoin or cash, from Tucker Carlson to talk about Ukraine.
Dave Brubeck - Take Five
Russia is rebuilding capacity to destabilize European countries, new UK report warns
Édith Piaf - Non, Je Ne Regrette Rien (Sofie)
EU Commission wants anti-drone defenses at Brussels HQ
Rondo Alla Turca
Von der Leyen’s 2nd-term pitch: More military might, less climate talk
Kiss of fire
Global Law Enforcement Dismantles Lockbit Ransomware Operation
Tom Jones - I´ll Never Fall In Love Again 1967, 1989, 2001
Prince William Urges End to Gaza Conflict
Israel Cachao López - Guajira Clásica
UK court to hear Assange's final appeal against extradition to the US, where he faces charges related to his journalistic work—the publication of a classified video in 2010 that exposed US war crimes against humanity.
Edward Maya - Stereo Love (feat. Vika Jigulina) (Extended Mix)
About 50-60% kids either chose to be YouTuber or influencer
Strauss - Radetzky March - Karajan
A viral video of Nationals MP Barnaby Joyce lying on a Canberra footpath is celebrated by his media mates.
La vie en rose
European Countries React to Navalny's Death by Summoning Russian Diplomats
The Temptations - My Girl (Smokey Robinson Tribute) 2006 Kennedy Cent
Israel has gone ‘beyond self-defence’ in Gaza, says Labour’s Streeting
Orlando Cachaito Lopez Redencion
English farmers to be offered ‘largest ever’ grant scheme amid food security concerns
Edith Piaf - NON, JE NE REGRETTE RIEN
Cameron government knew Post Office ditched Horizon IT investigation
RADETZKY MARCH-2008-Wien, New Year Concert
EU Calls for Immediate Ceasefire in Gaza Conflict
Only you (And you alone)
EU Vows To Hold Putin "Accountable" After Meeting Alexei Navalny's Wife
Strangers In The Night
EU Launches Probe Into TikTok Over Child Protection Under Digital Content Law
Charles Aznavour - La Boheme
The EU Initiates Naval Mission to Defend Red Sea Trade Routes
Summer time
EU and UK Announce Joint Effort on Migration
Sting and Stevie Wonder - Fragile (from Sting's 60th birthday concert)
Brazil's Lula Likens Gaza Operation to Holocaust, Israel Says "Red Line" Crossed
Aux Champs Elysees
Ministers Confirm Proposal to Prohibit Mobile Phone Usage in English Schools
Stand By Me - Ben E. King (Boyce Avenue acoustic cover)
Microsoft-backed OpenAI valued at $80bn after company completes deal
La Mer (Beyond the Sea) – Avalon Jazz Band
‘Alexei would want to tell Russia not to give up fighting’
She
Rwandan Footballer's Dismissal Sparks Concerns Over UK Asylum Plan
Nathalie Song by Enzo Petrachi Stjepan Hauser Cello
Whisky Challenges China's Baijiu Market During New Year Celebrations
Shape of My Heart - Sting (Boyce Avenue acoustic cover)
Avdiivka - Symbol Of Ukrainian Resistance Now In Control Of Russian Troops
Radiohead - Creep
Putin Critic Alexei Navalny's "Killers" Refusing To Hand Over Body, Say Allies
Quizás,Quizás,Quizás - Andrea Bocelli - Jennifer Lopez
"Historic Step": Zelensky Signs Security Pact With Germany
Perhaps, Perhaps, Perhaps - Multi-Couples
"Historic Step": Zelensky Signs Security Pact With Germany
Pentatonix Havana
20 Tech Giants Sign Effort To Fight AI Election Interference Across Globe
Paula Cole - Autumn Leaves
Joe Biden Accuses Putin of Causing Navalny's Death
Oscar Benton Bensonhurst Blues
Russian opposition leader Alexey Navalny has died at the Arctic prison colony
OH NANANA vs ABUSADAMENTE
Tucker Carlson grocery shopping in Russia. This is so interesting.
Nina Simone - ”I Put A Spell On You”. Vezi aici cum cântă Jeremy Ragsd
Julian Assange's Wife Warns of His Death if Extradited to US
NIGHTWISH - The Phantom Of The Opera
‘A lot higher than we expected’: Russian arms production worries Europe’s war planners
Motorshow 2016 Tanjay Negros Oriental
Greece Legalizes Same-Sex Marriage and Adoption Rights
Monica Bellucci - Ti Amo
Hungarian Foreign Minister: Europeans will lose Europe, the Union's policy must change drastically
Michael Jackson - Billie Jean Milena The Voice France 2018
In Britain Homeowners are receiving CPO’s (Compulsory Purchase Orders) so their homes can be redistributed to migrants
Michael Buble (Help Me Make It Through The Night) feat Loren Allred
Memories Canon In D - Maroon 5 (Boyce Avenue piano acoustic cover)
Matteo Simoni - Marina
Maroon 5 - One More Night
Maroon 5 - Memories
Mark Knopfler - Brothers In Arms (Berlin 2007 Live)
Mark Knopfler & Emmylou Harris - Romeo And Juliet (Real Live Roadrunni
Marina, Marina - The LUCKY DUCKIES intimist live concert at Guimarães
Major Lazer & DJ Snake – Lean On Mauranne The Voice France 2016
Love Theme from Romeo and Juliet - Joslin - Henri Mancini, Nino Rota
LoLa & Hauser - Love Story
Linkin Park Jay-Z - Numb Encore (Live 8 2005)
Hallelujah Mennel Ibtissem, The Voice France Leonard Cohen
Leonard Cohen - Dance Me to the End of Love
Leonard Cohen & Natasha Rostova - Dance me to the end of love
La casa de papel - Bella Ciao
La Camisa Negra
L'italiano (Toto Cutugno) - The Gypsy Queens
Juanes - La Camisa Negra
Jonathan and Charlotte - Britain's Got Talent 2012 Live Semi Final - U
John Powell - Assassin's Tango
Joe Cocker - You Can Leave Your Hat On (LIVE in Dortmund)
Joe Cocker - Unchain My Heart 2002 Live
Joe Cocker - A Whiter Shade Of Pale
Jay Z & Alicia Keys - Empire State of Mind LIVE
Jason Mraz - Im Yours (live)
Jarrod Radnich - Bohemian Rhapsody - Virtuosic Piano Solo
James Blunt - You're Beautiful
James Blunt - You're Beautiful & Bonfire Heart (Live at The Nobel Peac)
If You Go Away - Helen Merrill & Stan Getz (Tribute to Virna Lisi)
I'LL BE MISSING YOU
I Say a Little Prayer
Hotel California ( Eagles ) 1994 Live
Historia de un amor - Luz Casal. Vezi interpretarea Biancăi Sumanariu
Here Comes The Sun - The Beatles (Boyce Avenue acoustic cover) on Spot
Heart - Stairway to Heaven Led Zeppelin - Kennedy Center Honors
HAVANA by Camila Cabello Zumba Pre Cooldown TML Crew Kramer Pastra
HAUSER and Señorita - I Will Always Love You
HAUSER - Waka Waka
HAUSER - Sway
HAUSER - Lambada
HAUSER - Historia de un Amor
HAUSER - Despacito
Great Pretender
Georgia May Foote & Giovanni Pernice Samba to 'Volare' - Strictly Come
Gary Moore - Still Got The Blues
GIPSY KINGS VOLARE Penelope Cruz
Fugees - Killing Me Softly With His Song
French Latino - Historia de un Amor
For A Few Dollars More The Danish National Symphony Orchestra (Live)
Flashdance • What a Feeling • Irene Cara
Filip Rudan - “Someone You Loved” Audicija 4 The Voice Hrvatska Sez
Eric Clapton - Wonderful Tonight
Enya - Only Time
Enrique Iglesias - Bailando (English Version) ft. Sean Paul
Enrique Iglesias - Bailamos
Elena Yerevan Historia de un amor
Ed Sheeran - Shape of You (Official Music Video)
Ed Sheeran - Perfect Symphony [with Andrea Bocelli]
Ed Sheeran - Perfect (Official Music Video)
Easy On Me - Adele (Boyce Avenue 90’s style piano acoustic cover) on S
ERA - Ameno
ELENA YEREVAN- Cancion Del Mariachi-IN STUDIO-2017 DPR
Dust In The Wind - Kansas (Boyce Avenue acoustic cover)
Don't Let Me Be Misunderstood
Despacito x Shape Of You - Pentatonix
Deep Purple - Child In Time - Live (1970)
David Foster When A Man Loves A WomanIt's A Mans World (SealMichael Bo
Dance me to the end of Love ( Pi-Air Design )
Coolio - Gangsta's Paradise (feat. L.V.) [Official Music Video]
Conquest Of Paradise (Vangelis), played on Böhm Emporio organ
Cielito Lindo
Chico & The Gypsies - Bamboleo
Canción Del Mariachi - Antonio Banderas, Los Lobos • Desperado
Camila Cabello - Havana (Audio) ft. Young Thug
Camila Cabello - Havana ( cover by J.Fla )
California Dreamin' - The Mamas & The Papas José Feliciano (Boyce Ave
Buster Benton - Money Is The Name of The Game
Hallelujah Pentatonix
Bobby McFerrin - Don't Worry Be Happy (Official Music Video)
Bob Dylan - Knockin' On Heaven's Door Emilia The Voice Kids France
Besame Mucho - Cesaria Evora
Ben E. King - Stand by Me Sax Cover Alexandra Ilieva Thomann
Bella Ciao
Bella Ciao - INSTRUMENTAL
Beautiful in White x Canon in D (Piano Cover by Riyandi Kusuma)
Bad Romance - Vintage 1920's Gatsby Style Lady Gaga Cover ft. Ariana Savalas & Sarah Reich(1)
BELLA CIAO 2020 - KARAOKE ITALIANO
BAMBOLEO - Gipsy Kings • Antonio Banderas, Katya Virshilas
BAILANDO (original)
Awesome Ukrainian yodeler - SOFIA SHKIDCHENKO (with English subtitles)
Avicii - The Nights
Atom - The Great Gig in the Sky
Aretha Franklin - (You Make Me Feel Like) A Natural Woman (Official Ly
Antonio Banderas - Cancion del Mariachi (Desperado)
André Rieu - Zorba's Dance (Sirtaki)
André Rieu - Can't Help Falling In Love
André Rieu & Mirusia - Ave Maria
Andrew Reyes Elton John - Don't Let The Sun Go Down The Voice 2020 (
Andreas Kümmert Whiter Shade Of Pale The Voice of Germany 2013 Showd
And I Love You So
All About That Bass - Postmodern Jukebox European Tour Version
Alan Walker - Faded (Piano Cover)
Ain't No Sunshine -- Bill Withers (cover by Canen 12 y.o.)
African music
Adriana Vidović - “Creep” Audicija 4 The Voice Hrvatska Sezona 3
Adriana Vidović - “Believer” Nokaut 3 The Voice Hrvatska Sezona 3
A Fistful of Dollars - The Danish National Symphony Orchestra and Tuva
4 Beautiful Soundtracks Relaxing Piano [10min]
2CELLOS - Whole Lotta Love vs. Beethoven 5th Symphony [OFFICIAL VIDEO]
2CELLOS - Smooth Criminal (Live at Suntory Hall, Tokyo)
2CELLOS - Smells Like Teen Spirit [Live at Sydney Opera House]
2CELLOS - Despacito [OFFICIAL VIDEO]
13 Year Old Girl Playing Il Silenzio (The Silence) - André Rieu
094.All About That Bass
00 - SADNESS PART 1
(Ghost) Riders In the Sky (American Outlaws Live at Nassau Coliseum, 1
(Everything I Do) I Do It For You - Bryan Adams (Boyce Avenue ft. Conn
What a wonderful world
Moon river
×