Ari Levy & Dave Mathews on Snap, Blue Apron & challenges of new IPOs

TL;DR

Tech IPOs are struggling due to the dominance of incumbent tech companies, such as Amazon, Facebook, and Google, who are willing to spend and experiment to maintain their core business and push out rivals.

Transcript

we've been watching IPOs in the tech space since 99 chasin right there Silicon Valley and the Silicon Valley either coast and this is typical the money is all made by the institutions on the backs of the investors coming in at IPO right and the the most interesting thing is the lockout period was this week for snap for snap right collapse what that... Read More

Key Insights

• ❤️‍🩹 The lockout period ending for Snap without causing a significant drop in the stock price indicates positive investor sentiment towards the company.
• 🧑‍💻 Incumbent tech companies pose a significant challenge for IPOs, as they have the size, leverage, and willingness to disrupt industries.
• ✋ IPOs struggle with pricing and valuations, often raising funds at high multiples and based on unrealistic future growth expectations.
• ❓ The IPO pipeline is filled with companies that may struggle to justify their valuations or achieve successful exits.
• 😋 Blue Apron, a food delivery company, faces competition from Amazon, but there are factors that suggest it may be undervalued and have a sustainable business model.
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Questions & Answers

Q: Why did the lockout period for Snap ending not cause a significant drop in the stock price?

The lockout period ending allows employees to sell shares, which usually leads to a decrease in the stock price. However, in the case of Snap, the stock price did not tumble due to potential factors such as limited employee selling or positive investor sentiment.

Q: What challenges do IPOs face due to incumbent tech companies?

Incumbent tech companies, like Amazon, Facebook, and Google, have significant size and leverage, allowing them to experiment and disrupt industries. This makes it difficult for IPOs to compete and operate as public companies.

Q: How do IPOs struggle with pricing and valuations?

Many IPOs have been pricing their stocks at high multiples, which are incomprehensible and based on unrealistic future growth expectations. This has led to inflated valuations that are difficult to justify, especially when competing with dominant tech companies.

Q: How does the IPO pipeline look like for tech companies?

The IPO pipeline is filled with companies that raised money at excessive prices and failed to meet expectations. Some companies have already gone away, and others are struggling to exit, raising questions about the sustainability of the pipeline.

Summary & Key Takeaways

• The lockout period for Snap, an IPO in the tech space, has ended, allowing employees to sell portions of their shares without causing a significant drop in the stock price.

• The challenges faced by IPOs are primarily due to the dominance of incumbent tech companies, who are willing to use their leverage to experiment and put their rivals out of business.

• IPOs like Snap and Blue Apron face challenges in pricing their stocks and justifying their valuations, especially in the face of competition from tech giants like Facebook and Amazon.