Tech bonanza 2.0 kicks off

pets.com mascot © Getty Images
Pets.com: an early dotcom disaster

The excitement over this year’s technology flotations is reminiscent of the dotcom bubble frenzy. Will it end the same way? Alex Rankine reports.

Is an unprofitable taxi firm worth $24bn, asks Lex in the Financial Times. Number-two US ride-sharing business Lyft managed to price well above its initial filing range when it listed on the Nasdaq at the end of last week, despite losing nearly $1bn last year. The valuation “only makes sense” if you accept that ride-hailing apps are a different business to traditional taxis. But Lyft has no “road map to profitability” other than the hope that expansion and technology will bring down costs. The firm’s 20% bounce in the share price on the first day of trading says “more about the… excitement over a new crop of initial public offerings” than Lyft’s prospects.

This year will see the “coming-of-age” of plenty of tech “unicorns”, says James Titcomb in The Daily Telegraph. Those heading for an initial public offering (IPO) include picture-based smartphone app Pinterest, data miner Palantir, corporate-chat service Slack and short-term rental site Airbnb. And there is a “new appetite for risk in the air”: 81% of firms listed in the US last year were making a loss, the highest number since 2000. This year’s class could top that: soon-to-list Uber is the most unprofitable private technology firm on record. The tech-stock bonanza of recent years will mean that many investors are “salivating” at the prospect, but there are “no guarantees” that this cohort will prove as “safe bets as their predecessors.”

Is it 1999 all over again?

The last great wave of tech listings was hardly a safe bet at the time, says Dana Cimilluca in The Wall Street Journal. This year could even surpass the 1999 tech boom, when a record 547 firms held US IPOs. But this time round the companies debuting are much bigger and more established than the likes of the infamous “pets.com” – one of many that floated with “little more than a… dotcom in their names”. Amazon has grown so much since listing in 1997 that a $1,000 investment then would be worth $1m today. But the difficulty back then was distinguishing one small online seller with a great future from all the peers that failed. By contrast, Uber is not small. If it attracts a projected valuation of $120bn at listing, it would have to be worth an impossible “$240trn” by the year 2041 to grow like Amazon has since it went public.

The rush to IPOs suggests that the smart money in venture capital thinks that now is a good time to sell stock, says Randall Forsyth in Barron’s. Today’s tech “unicorns” have grown big and powerful on private capital before coming to market. “Public market investors are now accessing companies at a much later stage of their development,” as Duncan Lamont of asset management group Schroders points out. So ordinary savers risk missing out on the rapid growth typical of early year businesses. Instead of using markets to raise capital like the finance textbooks say, it seems that many tech founders and employees regard IPOs as a way to cash out profits on their “winning lottery tickets”.


Britain’s ten most-hated shares

Company Sector Short interest on 1 April (%) Short interest on 20 Feb (%)
Metro Bank Financial Services 11.29 8.23
Arrow Global Financial Services 11.24 11.97
Marks & Spencer General Retailers 9.55 10.93
Anglo American Mining 9.54 9.5
Debenhams General Retailers 9.53 10.42
AA Support Services 9.1 9.18
Jupiter Fund Mgmt Financial Services 8.74 NEW ENTRY
Pearson Publishing 8.71 8.99
Ultra Electronics Defence 8.16 12.58
IQE Semiconductors 7.73 8.22

These are the UK’s ten most unpopular firms, based on the percentage of stock being shorted (the “short interest”). Short-sellers aim to profit from falling prices, so it helps to see what they’re betting against. The list can also highlight stocks that may bounce on unexpected good news when short-sellers are forced out of their positions (or banned by overzealous regulators). New entry Jupiter Fund Management has seen its assets under management and share price fall by 20% and 50% respectively in the past year. A dividend cut seems imminent. The group is more reliant than its peers on retail investors, who were severely rattled by last year’s market volatility.


City talk

easyJet’s chief executive Johan Lundgren has “piloted the shares to a lower altitude”, writes Alistair Osborne in The Times: summer ticket sales were unusually weak and  a £275m pre-tax loss in the first half of this year is now on the cards. Lundgren says that macroeconomic and Brexit uncertainty are to blame. A torturous EU exit clearly cannot help a pan-European airline, but the big question is why the airline is still increasing seat capacity given such patchy demand.

Senior management at Superdry had described the idea of co-founder Julian Dunkerton (pictured) returning as “highly disruptive”, says Nils Pratley in The Guardian. But after a 75% fall in the share price in a year, investors wanted some disruption. In a shareholder vote this week Dunkerton won 51.15% to return as a director, prompting the entire board to resign. A scathing critic of the company’s direction, he will now be able to make changes. Investors may have calculated that a founder “with his personal wealth on the line” has a better chance of turning things around than an outgoing boss who “somehow” got a £700,000 bonus last year.

Apple supplier Foxconn says that earnings fell 12.6% in the fourth quarter of last year amid weak iPhone sales in China. The Taiwanese electronics manufacturer assembles iPhones and gets almost half of its annual revenue from Apple, notes Robyn Mak for Breakingviews, but diversification is proving hard. In 2016 Foxconn subsidiary FIH Mobile paid $350m for Nokia’s phone unit, but buyer’s remorse has now taken hold: the Finnish handset maker contributed to a loss of $857m at FIH in 2018, blamed on a shrinking smartphone market that was not tempted by the group’s “infamous banana phone”.