Cash-burning unicorns are not popular among investors anymore. After the worrying performances showcased by companies like Slack, Lyft, and Uber upon their Wall Street IPO debut previously this year, it could mean that investors are slowly losing their appetite for investing in unprofitable companies.
Online seller SmileDirectClub had a disastrous debut as well, on Thursday, which didn’t help encourage the current market sentiment. The firm’s shares fell by over 25% from their IPO prices, although it later did rebound on Friday. This company has been burning through cash as well.
This could spell doom for firms such as We Company, which owns WeWork that has accumulated vast amounts of losses. It has also come under fire for the corporate governance system in effect throughout the company.
We Company is planning on listing its stocks on NASDAQ in the upcoming weeks. However, as a result of these latest developments, the company may have to reduce its stock valuation by over 50%, leaving the company with a net valuation of $10B. Softbank, the Japanese technology giant, which holds the biggest stake in the company, has urged the firm’s management to delay the IPO until the storms have passed.
Streaming fitness and cycling equipment firm Peloton Interactive happens to be preparing for its own debut. Although the company’s sales have risen significantly, it is still losing cash at an incredible pace, having burnt through over $246M in the last fiscal year. The company had reported a $48M loss in the previous year.
Investors are now becoming skeptical of several unprofitable unicorns. However, Doug Peta of BCA Research, who works as the chief U.S. investment strategist at the firm, stated that this skepticism was a good thing. It showed that investors weren’t entering a bubble-fueled mania, last seen in the 90s, when dot-com firms, which had low revenue collections or profits were launching IPOs left, right, and center. Such firms had seen their prices grow over 200% during the first day itself.
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