Saudi Press

Saudi Arabia and the world
Saturday, Feb 22, 2025

The struggling IPO class of 2019 could be facing another wave of selling soon

The struggling IPO class of 2019 could be facing another wave of selling soon

Lock-up periods are expiring for new IPOs, which could introduce a new layer of pressure for some already struggling stocks this year.

Shares of 30 recently public companies become eligible for selling between now and the end of this year.

Analysts say that could pressure already struggling IPOs’ performance and dissuade other start-ups from entering public markets this year.

“This does impact the stock price,” says Larry McDonald of research firm “The Bear Traps Report.”

Lock-up periods are expiring for this year’s IPO class, which analysts say could introduce a new layer of pressure for young companies.

Founders, employees and some early private investors who bought in before a company goes public are usually restricted from selling for between 90 and 180 days. Uber, Pinterest, Zoom and others are approaching that expiration date between mid-October and the end of the year.

A flood of selling could weigh on already struggling IPOs and dissuade other start-ups from entering public markets this year, according to analysts. It’s also a reason some in Silicon Valley are lobbying for direct listings, which don’t have the same selling restrictions.

“As lock-ups expire, some of that shortage of supply goes away,” said Nick Colas, co-founder of DataTrek Research. This flood of shares could put pressure on stock prices, he added.

Uber has struggled since its public debut with shares down roughly 35% since. The ride-hailing company is by far the biggest of the newly public companies with shares unlocking in the coming months. Private markets are often opaque, and estimates vary - one by research firm “The Bear Traps Report” puts the total Uber shares unlocking closer to 763 million, worth $22 billion. The same firm says roughly $31 billion worth of public company shares are unlocking from now until the end of this year.

Others have fared better though: video-conferencing start-up Zoom is trading at more than double its IPO price, while Beyond Meat has more than quadrupled in value. Pinterest is up more than 30% since its IPO.

If founders decide to sell around the lock-up date ending, shares flood the market, which DataTrek’s Nick Colas said can be an added drag on stock prices. Colas said early private investors are likely to sell regardless of an IPO’s performance so far this year.

“Their job is to get the company to the private markets, then to sell,” he said. “Venture capitalists are going to sell into lock ups because they have a huge investment in the assets and because their cost basis is so low — they still have a big gain even if the IPO hasn’t performed.”

That can exacerbate a stock dip if people see “smart money” like venture capital selling, he said, creating a false narrative that investors are getting out because a stock is underperforming. In this case, they don’t have much of a choice, because “the job of a venture capitalist is to get their money back, their investment back, and move on to the next thing.”


Employee pressure


Employees often have stock options to buy shares below the IPO price. Tech engineers, for example, might sacrifice stability of a Google or Amazon for a stake in a young company that can pay off big in an IPO. As these companies stay private for longer (a decade in the case of Uber), employees are ready to get some liquidity by IPO day.

“The average employee probably has the vast majority of their personal wealth in stock,” Colas said. “Prudent financial management says you want to diversify - so selling is not really optional.”

The dot-com bubble offers a cautionary tale. Shares of internet companies ran up because there was a shortage of stock. As lock-ups expired, that shortage went away, and public investors went from being able to buy 5% of the company in public markets to buying 30%, 40% or 50%, Colas said. Still, today’s IPO market doesn’t have the ability to rock bellwether tech names that dominate the S&P 500′s market cap.

“If a bunch of IPOs don’t work, it doesn’t mean much for Google stock or Microsoft stock,” Colas said.

Larry McDonald, founder and editor of research platform “The Bear Traps Report,” pointed to Facebook as a more recent example. Shares of Facebook dropped 4% in 2012 as companies were suddenly allowed to sell 230 million shares six months after the lock-up period ended.

“The market wasn’t that great to begin with, then there was an immediate impact from that lock-up,” he said.

McDonald said this may affect the future IPO window, since the psychology of going public is often driven by how recent stocks have performed.

“This does impact the stock price, and could affect one of these start-ups that’s looking to go public and saying ’wow - there’s even more pressure on the stock … I’m going to wait until 2020 or put off an IPO even further,” he said. “It incentivizes a CFO to put it off until next year.”


Direct listings


The lock-up issue is one reason Bill Gurley, partner at venture firm Benchmark, and others have rallied around direct listings. The venture capitalist said on CNBC in September that the IPO process was a “bad joke” for Silicon Valley. Gurley gathered more than 100 CEOs of late-stage private tech companies, along with another 200 or so CFOs, venture capitalists and fund managers for an invitation-only event in San Francisco called “Direct Listings: A Simpler and Superior Alternative to the IPO.”

Mark Goldberg, partner at Index Ventures, said with direct listing there is no lock-up period, “so buyers and sellers can meet on day one of trading without any distortion - it’s much cleaner.”

“The money currently trapped in lock-ups weighs heavily on recent IPOs; even if current investors decide to hold beyond the lockup, the public markets are forced to guess which direction they will go,” Goldberg said. “That uncertainty creates volatility. A direct listing helps a company find its financial equilibrium faster.”


‘Short-term headwind’


Lyft’s lock-up ended on Aug. 8. While shares held up that day, the stock has dropped roughly 40% since the lock-up expiration date.

Tom White, senior research analyst at D.A. Davidson, said Lyft’s weakness was more about general “de-risking” in the market as opposed to the lock-up expiration date.

“I generally think of these expirations as more of a short-term headwind for a newly public company’s shares,” White said. “For Uber, as in Lyft’s case, given how long it was a private company, I suspect some of the early investors are sellers of the stock effectively at any price.”

McDonald echoed that sentiment and said IPO market weakness is more about equity investors shunning risk in search of defensive names, especially as trade war uncertainty drags on. IPOs, for the most part, are squarely in the risk category.

“Every single nook of the market that is risk-oriented is getting nailed right now,” he said. “It’s just an indicator of what the market is going through.”

Newsletter

Related Articles

Saudi Press
0:00
0:00
Close
Saudi Arabia and the United States Strengthen Ties Amid Global Developments
Saudi Arabia Hosts Global Conference to Promote Islamic Unity
The Impact of Artificial Intelligence on Education and Child Development
Saudi Arabia Announces Competition for Best Founding Day Outfits
Saudi-EU Food Security Officials Hold Talks to Strengthen Collaboration
Putin Expresses Gratitude to Saudi Crown Prince for Hosting US-Russia Talks
UK and Saudi Arabia Enhance Collaboration in Innovation and Technology
Denmark's Embassy in Riyadh Showcases Danish Cuisine with Saudi Influence
Saudi Artist Salman Al-Amir Unveils 'Tafawut' Exhibition in Riyadh
Saudi Arabia Offers Condolences to Kuwait Following Military Exercise Fatalities
Saudi Ministry of Islamic Affairs Completes Ramadan Preparations in Madinah
Etidal Secretary-General Hosts UN Counter-Terrorism Director in Riyadh
ADNOC Drilling Targets Over $1 Billion in Investments for 2025 Amid Gulf Expansion Plans
Derayah Financial Achieves Remarkable Growth in Saudi Brokerage and Asset Management
Saudi Arabia Shortlists 30 Firms for Mining Licenses in Eastern Province and Tabuk
Saudi Foreign Minister Engages Counterparts at G20 Meeting in Johannesburg
Oil Prices Decline Amid Rising US Inventories
Saudi Arabia's NDMC Plans Green Bond Issuance by 2025
Moody’s Affirms Egypt’s Caa1 Rating Amid Positive Economic Outlook
Oman and Saudi Arabia Strengthen Economic Ties with New Agreements
Saudi Arabia Investments Propel Expansion of Qurayyah Power Plant
Saudi Capital Market Authority Advances SPACs and Direct Listings
Global Energy Leaders Gather in Riyadh for Symposium on Energy Outlooks
Al-Ahsa Region Sees 500% Growth in Tourism as Saudi Arabia Prioritizes Development
Saudi Arabia Advances Entrepreneurial Ecosystem in Al-Ahsa with New Agreement
King Salman Approves Official Saudi Riyal Symbol
Saudi Credit Card Lending Reaches $8.4 Billion Amid Digital Payment Expansion
King Salman Approves Official Symbol for Saudi Riyal
Putin Thanks Saudi Crown Prince for Facilitating U.S.-Russia Discussions
Saudi Foreign Minister Attends G20 Meeting in Johannesburg
Saudi Arabia Prepares for Nationwide Founding Day Celebrations
Inauguration of Hira Park and Walkway Enhances Jeddah's Urban Landscape
Crown Prince Hosts Leaders for Informal Meeting in Riyadh Amid Gaza Rebuilding Plans
Saudi Official Highlights Achievements and Media's Role in National Transformation
Three Expatriate Women Arrested for Prostitution in Riyadh
Saudi Arabia's Diplomatic Evolution Highlighted at Saudi Media Forum
Healthy Eating and Preparation Essential for Ramadan Fasting
Saudi Arabia and Japan Forge Sustainable Textile Partnership
Advanced Limb Surgery Restores Mobility in Pediatric Cancer Patient
Jeddah Event Explores AI's Role in Boosting Saudi Arabia's SME Sector
UN Representative Highlights AI's Role in Perpetuating Gender Stereotypes
Saudi and Jordanian Leaders Discuss Enhanced Security Cooperation in Amman
Saudi British Society Honors Cultural Bridge-Builders at London Gala
Saudi Media Forum 2025 Explores AI's Role in Modern Journalism
Saudi Arabia's Saqer Al-Moqbel Appointed as WTO General Council President for 2025–2026
Saudi Deputy Ministers Engage in Diplomatic Discussions with U.S. and Dutch Officials in Riyadh
Saudi Arabia to Launch Iftar Program in 61 Countries During Ramadan
Saudi Visitors Expected to Spend £942 Million in UK During 2025
Saudi Arabia Gifts Kaaba's Kiswah to Uzbekistan's Center of Islamic Civilization
Digital Cooperation Organization Concludes Fourth General Assembly with Multiple Agreements
×