If I were a tech venture capitalist, which sadly I am not, the pummeling that Snap Inc’s (NYSE:SNAP) stock has gotten since it’s much-hyped IPO last month would be scaring me to death.
I mean if Snap, which allegedly is the best thing to hit social media since Facebook Inc (NASDAQ:FB), can’t gain traction, then what chance do other so-called “Unicorns” such as Uber, Pinterest and Airbnb have as public companies?
Snap didn’t do its brethren any favors by offering shareholders stock with zero voting rights, which must sting shareholders almost as badly as the company’s $514.6 million net loss in 2016. To make matters worse, Snap even warned investors that it might never earn a profit.
No wonder SNAP stock has slumped more than 15% since its IPO, and Wall Street analysts can’t slap “sell” ratings on the stock fast enough.
Why SNAP Spells Trouble for These Unicorns
Since most of the unicorns are either marginally profitable or are deep in the red, most are probably looking at going public with the same attitude I have about skydiving — why leave the comfort of a perfectly good plane?
Let’s consider the case of Uber. Not only did the ride-hailing service reportedly lose more than $3 billion last year, but its CEO Travis Kalanick is getting headlines for all the wrong reasons such as getting into pointless arguments with drivers and the company’s rampant sexism.
Kalanick, who dubbed his company “Boober” because of his success with the ladies, recently vowed to grow up and to become a better leader. He has no choice. Large institutional shareholders have little tolerance for “wacky” CEOs who lose money, especially one that has an insane $60 billion valuation.
Even Pinterest might want to take a breather on the road to going public even though the company’s user base grew from 100 million in 2015 to 150 million a year later. Revenue was expected to triple last year to $300 million. Interestingly, while the sales and user figures have been leaked, there has been no talk about its profits because they likely are non-existent.
While I agree with my colleague Tom Taulli’s view that Pinterest “is an excellent platform for monetization,” Pinterest had already failed to meet its promised growth rates once before though CEO Ben Silberman told the Wall Street Journal that it has learned from its mistake. Bessemer Ventures partner Jeremy Levine, which is a Pinterest investor, told the paper that it has raised $1.3 billion and didn’t need any more venture capital. Therefore, there is no sense of urgency to do an IPO.
Airbnb is the rare unicorn that makes money. At least, it does when measured by earnings before Interest, taxes, depreciation and amortization (EBITDA). According to Bloomberg, the room rental company was profitable on that basis, the preferred metric of tech investors, in 2016 and expected to remain so through 2017.
The odds are that on a GAAP basis, Airbnb is not profitable, but given the other unicorn choices available that will be close enough for many investors who would sell their own money to get it on the ground floor of the stock.
However, I don’t expect an Airbnb IPO anytime soon. For one thing, the company still has nearly all of the $3.1 billion in funding it has raised and it is looking at investments and acquisitions, according to Bloomberg. With a valuation of $30 billion, it can afford to stay private for as long as it wants.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
