The excitement earlier this year at the prospect of disruptive tech companies hitting the public markets seems a long time ago.

For all the euphoria over the likes of ride-sharing app Uber, the chief feature (apart from the lack of profits) of several of these companies since their listing has been their disappointing performance. Uber shares, for example, have plunged more than 30 per cent since the group’s IPO.

Analysts say the poor performance is partly a product of investors having been sucked into the hype surrounding them.

An FT analysis of global IPOs that raised more than $50m this year found that shares of tech companies either priced in the top third of their range, or exceeded it. Twenty companies, including social media network Pinterest and ride-hailing app Lyft, raised money above the initial price range. Shares in both have fallen since the IPO.

“The market has applied a sanity check to the valuations of a lot of these high-growth unicorns that have not shown an obvious path to profitability,” says Jay Ritter, a finance professor at the University of Florida.

Graphic showing how IPOs in 2019 priced when coming to the market

The rich pricing of tech IPOs comes as companies from other sectors raised money at the lower end of their range. More than half of non-tech companies that reached the public market priced in either the bottom third of the range or below it.

Now there are signs that investors’ enthusiasm may be waning. According to Mr Ritter, US listings made an average first-day return of 25.9 per cent during the first six months of the year compared with 16.2 per cent since.

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So far 38 IPOs have been pulled this year, according to data provider Dealogic, compared with just eight in 2017. WeWork is the highest-profile example.

“The market has not turned on IPOs. The issue is the frothiness of valuations especially in tech. The ratings now are much more justifiable than a few months ago,” adds Mr Ritter.

Since September no IPO has priced above its range, but seven have fallen short of them, even as the US stock market has hit a new record high. These include Progyny, Galera Therapeutics and TELA Bio — mainly US biotech companies.

However, in its latest IPO report, EY said it expected the outlook for global listings to pick up this quarter and into next year when there may be more clarity on US-China trade tensions and Brexit.

This may yet spell better news for bankers and their clients. But Bank of America investment strategist Jared Woodard offers a note of caution.

“Just 14 per cent of US tech IPOs are profitable this year, the last time that happened was at the dotcom peak in 2000 and we all know what happened after that,” he noted.

Investors may be in no hurry to rediscover their early-year excitement.



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