For this article, we look at the performance of the biggest unicorn IPOs as mentioned by a recent Business Insider article. By comparing the opening IPO price with the price listed on Yahoo Finance as of June 25, 2019, we see a wide range of performance.
- “Unicorn” is a term used in venture capital to describe a startup company with a value of over $1 billion
- Unicorns are going public at an unprecedented rate in 2019 due in part to demand for high-growth stocks
- Long-term unicorn performance is mixed, with companies both gaining and losing in market value since their IPO
More big-name unicorn IPOs are coming this year, including Airbnb, Uber and Postmates
In finance, a “unicorn” is a real thing: it’s a privately-held startup valued at over $1 billion. What makes these companies so special to deserve the title? Traditionally, a company generally needed large amount of resources to grow to such a valuation — it went public to open up new sources of financing. But today, a company can grow to massive size with very few resources. This is especially true of tech.
The 5 Best-Performing Unicorns
1. Beyond Meat: $3,274 (227.39%) – IPO Date: 5/2/2019
2. DocuSign: $1,311 (31.13%) – IPO Date: 4/27/2018
3. Zoom: $1,308 (30.82%) – IPO Date: 4/18/2019
4. PagerDuty: $1,293 (29.31%) – IPO Date: 4/11/2019
5. TradeWeb: $1,199 (19.94%) – IPO Date: 4/4/2019
The 5 Worst-Performing Unicorns
1. Snap Inc.: $605 (-39.46%) – IPO Date: 3/1/2017
2. Lyft: $733 (-26.67%) – IPO Date: 3/29/2019
3. Dropbox: $827 (-17.34%) – IPO Date: 3/23/2018
4. Spotify: $869 (-13.10%) – IPO Date: 4/3/2018
5. Slack: $914 (-8.57%) – IPO Date: 6/20/2019
So, if companies don’t need the funding, why are they going public? A few theories exist: maybe these firms are seeing the overall strong performance of the stock market and want to get in “on a high note,” before the next recession. Maybe they are looking to fill a demand in the marketplace for stocks with potential for faster growth.
Or maybe it’s just “groupthink:” All the unicorns are going public because “that’s what all the cool unicorns are doing.” We’ve seen an episode where highly-valued, tech-centered stocks go public end very poorly: the dot-com bubble.
Some point to the disappointing performance of early unicorns like Snap and Dropbox as signs that the unicorn bubble has already burst. That may be an unfair assessment, but so would the expectation that all unicorns perform strong after their IPO. Historically, 60% of companies have had negative returns after their IPO. It’s too soon to say for sure, but our small sample of unicorns is doing better than that.
So, which companies will deliver value long after Day 1? For that, we might look to the highest-returning stock, Beyond Meat. Not a tech company per se, Beyond Meat has disrupted a market with its innovative meat-substitute products. The unicorns that can deliver unique products to unexpected markets will be the ones which live “happily ever after.”
What explains the rise in the “unicorn IPO?” Which upcoming offerings seem most promising? Are you surprised by the performance of any listed in this viz? Let us know in the comments.
Data: Table 1.1