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Dot Com Two Dot Ouch: 68% Of All 2013 IPO-ing Companies Lose Money

Tyler Durden's picture





 

Last week we showed the worrisome level of exuberance that IPOs were creating in terms of price outperformance over the broad market. It turns out the similarities to the prior dot-com busts runs considerably deeper (and more worrisome). As the WSJ reports, 68% of U.S.-listed technology debuts this year, or 19 out of 28 deals, have been companies that lost money in the prior fiscal year or past 12 months. That is the highest percentage since 2007, and 2001 before that.

As we noted before - this is what everyone believes will happen... and that they will be the first out...

 

Via WSJ,

No profits? No problem.

 

Investors are showing increasing hunger for initial public offerings of unprofitable technology companies and the potential for big gains that they bring.

 

...

 

The excitement over companies' potential rather than their present results is the latest sign in the stock markets of a rising tolerance for risk. The U.S. IPO market, often seen as a gauge of risk appetite because the stocks don't have a track record, is on pace to produce the most deals since 2007

 

...

 

The piqued interest in earlier-stage technology IPOs in particular has raised concerns that IPO investors are turning a blind eye to the possibility that business plans don't pan out.

 

...

 

"IPOs can have a place in someone's portfolio if you're willing to be a trader," said Robert Pavlik , chief market strategist at Banyan Partners, an investment manager that advises on $4 billion in assets. "But if you want to be a long-term investor, don't treat the stock market as another kind of Las Vegas."

 

...

 

Some investors "want a lottery ticket on a company disrupting a very, very large market,"

 

...

 

Pets.com Inc., for example, went public with sales of just $5.8 million in the three quarters before its 2000 IPO. Pets.com's shares priced at $11 and were trading at less than $1 when the company closed later that year.

 

In contrast, Splunk Inc., a data-analysis software company, lost $11 million in the fiscal year before its IPO in April 2012, but had total revenues of $121 million. Its shares are up 248% since its debut.

 

...

 

"You should be more wary of these IPOs. They say the scariest words in the market are 'this time is different,'" said Lance Roberts, chief strategist for STA Wealth Management

 


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Fri, 10/11/2013 - 18:19 | Link to Comment Dear Infinity
Dear Infinity's picture

Quick, Watson! Unload 5 million TWTR at MARKET! The retailers are leaving the building fast.

Fri, 10/11/2013 - 18:29 | Link to Comment King_of_simpletons
King_of_simpletons's picture

All of these losers packaged into your Pension's "Stable Value Balanced Fund - 2045 Target Date"

The target date being you will retire penniless with a big hole in your underwear and your penis will hang out of that.

Fri, 10/11/2013 - 18:34 | Link to Comment Manthong
Manthong's picture

Party like it's 1999!

Fri, 10/11/2013 - 18:40 | Link to Comment Rainman
Rainman's picture

You bought some of that Pets.com too ?

Fri, 10/11/2013 - 18:45 | Link to Comment Skateboarder
Skateboarder's picture

The startup scene is saturated as fuck in SF again. Only a dumbass would hope to make it big now.

But the wheel's gonna spin so long as the VC on Sand Hill Rd. keep throwin more founds of funding.

Fri, 10/11/2013 - 18:55 | Link to Comment The Alarmist
The Alarmist's picture

Must be all that hot money from Nancy Pelosi's stash.

Fri, 10/11/2013 - 19:00 | Link to Comment smlbizman
smlbizman's picture

am i correct, that all these ipos do not have to disclose accurate financials for 5 years....and even to the point they can make them up until then....can anyone verify this?

Fri, 10/11/2013 - 19:12 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

BTFNYFI

Buy The Fucking Narrative You Fucking Idiots

Sat, 10/12/2013 - 09:02 | Link to Comment GMadScientist
GMadScientist's picture

Slide it right into their GAAP.

Now I'm off to go tweet about Space X so I can dump my shares.

Fri, 10/11/2013 - 19:47 | Link to Comment lewy14
lewy14's picture

Honestly don't see the problem here.

Startups lose money - that's what they do.

Sometimes they lose money for a very long time. Often, when they get to a break-even point, they raise more money so they can go into loss making mode again. This is actually a very good sign; many startups want to get to profitability not to make a profit, but to raise the next round on more favorable terms. 

Sometimes that "next round" is the public round. Yes, the IPO provides liquidity for the founders and early investors, but it also raises capital which is used to expand and grow the business.

This is all capitalism 101. I don't see the objection if you're a capitalist. If not, whatevers, and honestly I'm not inclined to discuss it with you, but people who appreciate markets and the role of capital therein should not be scandalized in principle with the idea of loss-making companies going IPO. 

As far as the "call option" bit - yes, exactly. Equity in loss making startups is akin to a call option. Every intelligent investor knows this. Call options have a value and it is not zero. Furthermore, all equity can be viewed as a kind of call option: see the role of option theory in capital structure arbitrage. But I digress. 

Fri, 10/11/2013 - 19:51 | Link to Comment Yenbot
Yenbot's picture

All well and good, when something of real value is actually produced- you know, guns, butter, affordable little cottages for retiring bankrupt retail traders...

Sat, 10/12/2013 - 16:21 | Link to Comment Bangin7GramRocks
Bangin7GramRocks's picture

So public companies NEVER need make a profit. You live in a fucked up world that you believe this shit makes sense. You should put all your money in Amazon. That company exemplifies what you stand for. They never make any money!

Sun, 10/13/2013 - 06:31 | Link to Comment lewy14
lewy14's picture

I put all my marbles career wise and investment wise into the "Amazon" of it's day. Sold to a greater fool. Did fine. Actually way better than fine. Stock found it's balance as a value stock once it started paying dividends. Bought some during the crisis. Recovered and now gives me some fat yield.

But hey I live in a fucked up world, so you should ignore me. 

Fri, 10/11/2013 - 20:30 | Link to Comment slotmouth
slotmouth's picture

I've been running an internet startup for over a year now, I am completely self funded from money I made in 08 crash, but I still attend meetings and network events in the vc community.  They will give money to any jackass who wants to buy a bunch of business cards and drink beer during the day in a loft setting.

Sat, 10/12/2013 - 00:58 | Link to Comment Tijuana Donkey Show
Tijuana Donkey Show's picture

Only if you sell your total soul.

Fri, 10/11/2013 - 18:44 | Link to Comment fourchan
fourchan's picture

but facebook.

Fri, 10/11/2013 - 19:21 | Link to Comment StacksOnStacks
StacksOnStacks's picture

What about Webvan???

Fri, 10/11/2013 - 18:30 | Link to Comment ebworthen
ebworthen's picture

I'm surprised Amazon hasn't resurrected Pets.com with an IPO and a special section on their website with a Kindle app:  "Buy some pet supplies AND some stock!"

Fri, 10/11/2013 - 20:29 | Link to Comment slotmouth
slotmouth's picture

disclaimer:  I am long sock puppets.

Fri, 10/11/2013 - 18:23 | Link to Comment lolmao500
lolmao500's picture

Hell froze over today...

http://www.nbcbayarea.com/news/politics/California-Gov-Jerry-Brown-Vetoe...

Gov. Jerry Brown Vetoes Calif. Bill Banning Semi-Automatic Rifles

Now let's see if it heats up again and those scumbags try to go over the veto.

Fri, 10/11/2013 - 18:24 | Link to Comment ebworthen
ebworthen's picture

The NRA sent him two Linda Rondstat look alike's for the whole weekend and a suitcase full of diamonds.

Fri, 10/11/2013 - 19:32 | Link to Comment Manthong
Manthong's picture

(clutching chest) I think the big one is coming on.

..looks like a few of his brain cells hung in there.

Fri, 10/11/2013 - 19:48 | Link to Comment Bastiat
Bastiat's picture

The gun folks were sharpening their knives to go after a couple of Dems for recall a la Colorado, if Brown signed those bills.  This would cause the dems to lose their super majority.  In Colorado they recalled the president of the Senate.   What happened in the Colorado recall was very low turn out and a successful recall despite the fact that Bloomberg personally donated more to the incumbents then the NRA did to the challengers.  Put a serious chill on the gun grabbers by the looks.

Fri, 10/11/2013 - 23:41 | Link to Comment NoDebt
NoDebt's picture

Good assessment, Bastiat.  

What's going on at the state level isn't the same as what's going on at the federal level.  It's just not getting as much coverage in the media.

Sat, 10/12/2013 - 03:09 | Link to Comment Manthong
Manthong's picture

.. good to know.

..also good to know Bloomberg had some of his "walking around money" ($300K?) shoved up his butt.

Sat, 10/12/2013 - 09:04 | Link to Comment GMadScientist
GMadScientist's picture

CZ and the look-alikes look like she does today.

Sat, 10/12/2013 - 16:28 | Link to Comment roadhazard
roadhazard's picture

 Must be a "trap", huh.

Fri, 10/11/2013 - 18:25 | Link to Comment Randoom Thought
Randoom Thought's picture

Makes sense to me. You cannot expect to banks to actually sell something of value to the public can you? The pay-off is that they do not care, since they control stock price. Make money, lose money, it does not matter because that is not the game. The game is theft and fraud to benefit the few, the cowardly, the parasitic, the elitists.

Fri, 10/11/2013 - 18:28 | Link to Comment CPL
CPL's picture

This is a bear trap. 

Facebook was fun to short once at open, but you didn't dare go back for seconds.  Algo's got 'smarter'.  Keep that in mind if playing these stacks.  Tight stops and finger on the trigger.

 

Fri, 10/11/2013 - 18:48 | Link to Comment MeelionDollerBogus
MeelionDollerBogus's picture

Meh. Give it another couple of weeks and I wouldn't think it unwise to get FP puts with a strike of 45-50 depending on the asking price and duration

Fri, 10/11/2013 - 21:01 | Link to Comment ToNYC
ToNYC's picture

I don't wish to think about when that success formula goes awry, catching the steam roller instead of the bucket of nickels.

Fri, 10/11/2013 - 18:36 | Link to Comment NOTaREALmerican
NOTaREALmerican's picture

Dude,  it's not about profits, dude.  It's about potential growth.

Fri, 10/11/2013 - 20:22 | Link to Comment Vampyroteuthis ...
Vampyroteuthis infernalis's picture

"Dude,  it's not about profits, dude.  It's about potential growth." ....... and Wall Street taking your money.

Fri, 10/11/2013 - 18:40 | Link to Comment Yen Cross
Yen Cross's picture

If I had the resources. I'd do the homework myself. How many of those IPOs were Russell & Pinksheet issues ?      Small cap/micro cap JUNK

Fri, 10/11/2013 - 18:40 | Link to Comment blindman
blindman's picture

I Think We`re Alone Now - Tommy James & The Shondells
http://www.youtube.com/watch?v=IkMFLUXTEwM

Sat, 10/12/2013 - 09:08 | Link to Comment GMadScientist
GMadScientist's picture

I Think We're Alone Now - Tiffany (remember this folks: this is the very moment that music started to die)

http://www.youtube.com/watch?v=w6Q3mHyzn78

I Think I'm a Clone Now - Weird Al

http://www.youtube.com/watch?v=1d-aWMQuoS4

 

Fri, 10/11/2013 - 19:55 | Link to Comment Real Estate Geek
Real Estate Geek's picture

I must have blacked out, because I don't remember a photographer getting up in my grill like that.

Fri, 10/11/2013 - 20:01 | Link to Comment Racer
Racer's picture

We need you to fund your imminent losses immediately or we will take all your money

Fri, 10/11/2013 - 20:20 | Link to Comment adr
adr's picture

Why is the company more valuable?

Virtually none of these tech companies pay a dividend. Profitable business for them is a pipe dream. Most of the new tech darlings don't even sell their product, it is given away for free.

So no profit, no dividend, yet skyrocketing share prices.

The only reason why you'd buy is because you expect someone else to pay you more later. That's not a business plan. That's just plain stupid, unless you're just gambling for the hell of it. But don't pretend you actually think these bullshit companies are really worth 1% the valuation Wall Street gives.

Fri, 10/11/2013 - 21:59 | Link to Comment hedgeless_horseman
hedgeless_horseman's picture

 

 

The only reason why you'd buy is because you expect someone else to pay you more later. That's not a business plan.

You're damn right it's not a business plan.  It's a Buy The Fucking Narrative Plan.  Did you not read my post above?  Just Buy The Fucking Narrative You Fucking Idiot. 

Fri, 10/11/2013 - 23:10 | Link to Comment CheapBastard
CheapBastard's picture

The only people who "make money " with an IPO are the issuers and those who held stock options before the IPO. Those who buy in the open market are usually Suckers...ooops, I mean innocent Sheeples....

Even my broker admits that.

Sat, 10/12/2013 - 09:04 | Link to Comment williambanzai7
williambanzai7's picture

 

You forgot...

1. Founders

2. Early round venture capitalists

3. Lawyers

4. Goldman Squid

Sat, 10/12/2013 - 09:09 | Link to Comment GMadScientist
GMadScientist's picture

Most necessarily not in that order.

Sat, 10/12/2013 - 12:41 | Link to Comment yogibear
yogibear's picture

IT does feels like money managers and Wall Street is in the  DOT COM mode again. Ferociously buying up stocks.

Not much downside. Yellen and the Fed will push for even more speculation and then claim they never saw it coming. 

Sat, 10/12/2013 - 14:06 | Link to Comment NaN
NaN's picture

What percentage of biotech IPO companies were turning a profit before the IPO?

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