Snap and Blue Apron continue to suffer post-IPO plunge
Young firms touted as the next big thing struggle to win over public investors
Snap Inc. and Blue Apron Holdings Inc. have swiftly gone from two of the year’s most anticipated IPOs to poster children for companies whose rich private valuations haven’t withstood the scrutiny of public markets.
Investors’ urgency to grab a piece of what could be the next big thing — a bet on future innovation — has helped drive up valuations of unprofitable private companies facing fierce competition.
Public market investors are showing a reluctance to reward rich market values without proof of financial health and future growth. That includes Snap and Blue Apron, both of which are trading below their initial public offering price.
“Investors who haven’t slept through Snap and Blue Apron will actually think about valuation, not dream about it,” said Erik Gordon, professor at University of Michigan’s Ross School of Business.
While there is more to running a successful company than market value, negative sentiment can erode customer relationships, employee morale and the ability to raise more money. It’s a cautionary tale for young firms taking private funding and a potentially ominous harbinger for the private tech giants yet to list: Overshoot what public investors can stomach and risk your stock taking a beating.
Snap, the maker of the disappearing-photo application Snapchat, fell below its US$17-a-share IPO price for the first time Monday and continued its decline Tuesday to as low as US$15.44.
Its market capitalization of about US$18.2 billion stands in disappointing contrast to the highend valuation target of US$40 billion described by a person familiar with the matter in October.
Snap was one of the biggest unicorns — private companies valued at more than US$1 billion. Having amassed sometimes billions of dollars at ever-increasing valuations, the likes of the US$31 billion travel rental platform Airbnb Inc. or the US$10 billion cloud storage company Dropbox Inc. may have to give investors an exit opportunity. That will be a true test at whether those valuations stand.
Fear of underperforming on lofty private valuations has already gummed up the exit pipeline.
Pre-IPO firms that don’t need the cash may hold off listing in the hope they can grow into their private market value, Gordon said.
A near-term IPO seems even less likely for others, namely Uber Technologies Inc. The US$69 billion private company is currently without a chief executive after founder Travis Kalanick resigned amid scandals.
For Snap, much of the pressure has been external. Since raising US$3.9 billion in its March IPO, the Venice, Calif.-based firm hasn’t been able to shake investor questions about its growth and worries over competition from Facebook Inc.’s Instagram app. By June, Snap was the most-shorted new U.S. technology stock of the year.
Blue Apron is facing its own rival colossus. Three days before the meal-kit delivery company’s IPO, Amazon.com Inc. concussed the entire food industry with an agreement to buy Whole Foods Market Inc. for US$13.7 billion.