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  • Jamie Adams

Overvaluation: 3 Companies That Have Struggled With High IPOs This Year

It has not been the kindest year for companies newly come to the public market, so we take a look at 3 firms that struggled following a high valuation. 




With the recent collapse of WeWork’s IPO fresh on our minds, we look at 3 companies who have struggled under the weight of a high valuation this year after going public. 


Slack

2019 will be looked at as the year the unicorn couldn’t get out of the stalls. Is Slack’s (NYSE: WORK) performance indicative of a deeper problem within private funding where investors get too easily distracted by a shiny brand name rather than the tenets of the business itself?


The collaborative software company is down over 40% since its direct listing on the New York stock exchange back in June, while new competitors in Microsoft (NASDAQ: MSFT) and Facebook (NASDAQ: FB) have been breathing down its neck. 


Growth worries seem to be hampering Slack, holding it back from truly pressing forward as a company. The company reported 58% revenue growth in the second quarter of fiscal 2020, which points to a substantial slowdown. According to its full-year guidance, Slack’s revenue growth is expected to fall further in fiscal 2020. In comparison, the company’s top line grew by over 100% in fiscal 2018 and 82% in fiscal 2019. Slack has already begun implementing subscription discounts, drawing it into a price war with Microsoft and Facebook that it does not have the resources to win.


However, all is far from gloomy for Slack, and let’s not forget, it has only been on the public market for less than half a year and is still a very popular product, reporting over 13 million users back in July. These numbers are set to show improvement in the company’s upcoming second-quarter earnings, despite growing competition, and though Microsoft versus Slack may not seem like a fair fight, there are many reasons why Slack is still in the game.



SmileDirectClub

There hasn’t been a whole lot to smile about for SmileDirectClub (NASDAQ: SDC) investors since the so-called teledentistry company went public back in September. It’s safe to say that, during one of the worst stock market debuts of the last decade, the company got its proverbial teeth knocked in.


Since its September high of just under $20 per share, the company has since dropped to hovering somewhere around the $12 mark, while the company has yet to turn a profit with losses exceeding $52 million in the six months ending in June. That compares to a $33.8 million loss in the previous year, according to its prospectus. 


Yet still, Wall Street seems to be fond of the company, with several analysts still backing the stock to level itself out after its initial ‘development’ stage, and eventually get to profitability. One potentially huge barrier to this is a proposed increase in regulations on the largely untapped tele-dentistry market. In California, Governor Gavin Newsom signed a bill that would add more regulations to the emerging sector in the state, and it is not clear if more states will follow suit. 


Smile’s chief competitor, Align Technology (NASDAQ: ALGN) has had a mixed year. Despite a heavy drop in back in the summer, through September, the company has experienced a rise in recent weeks in opposition of Smiles' continued decline.


Things do not look to be improving for SmileDirectClub, as it was reported in early November that company investors were investigating concerns whether SmileDirectClub had engaged in securities fraud or other unlawful business practices. It is yet to be seen what will become of this, but it is sure to hurt the company further. 



Uber

Despite being a driving force behind the changing face of modern transport, nobody is rushing out the blocks to snap up Uber (NYSE: UBER) stock. The company has been completely unable to make itself profitable, despite years of effort and billions in investment. 


The company’s troubles didn’t begin with its May IPO, but they certainly multiplied. The company immediately garnered a valuation north of $80 billion and then it fell like a stone. One could put this down simply to poor management at Uber, such as its poor treatment of employees, its 12.5% monthly driver turnover rate, and its UberEats venture which is losing money. 


But the fact that chief competitor Lyft, Inc (NASDAQ: LYFT) is experiencing the same problems on a larger scale imply that the industry of ride-sharing is simply not profitable. What is left then is these two companies competing in a race to zero, which neither wishes to win. In order to outpace the other, both Lyft and Uber must offer incentives and discounts to keep users up, which in turn, leads to lower revenue.


Uber looks like a company without a plan right now, as its diversifying portfolio which includes food delivery – and soon will include Uber Pay – is also not turning a profit. The goal for Uber has been to create a world of easy transport, and it is successfully doing so. However, when you are valued at $40 billion, with no plan to turn a profit, you will most likely lose the backing of investors.



MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Slack. Read our full disclosure policy here.

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