Daily Management Review

Even After Despite Good Quarterly Results, Shares Of High-Flying IPO Drop


Even After Despite Good Quarterly Results, Shares Of High-Flying IPO Drop
There of the best performing IPOs for 2019 on Wall Street fell flat on their face as investors lost confidence on the high valuation of the stocks even after the companies reported better than expected quarterly results.
One such IPO was that of Zoom Video Communications that fall by 2 per cent even after the company’s quarterly results and full-year forecast fared better than what analysts had expected.
On the other hand, there was a loss of 8.7 per cent in the stock price of cyber-security company Crowdstrike even after company reported better-than-expected results and offered encouraging forecasts for the next quarter.
And there was a drop if 12.3 per cent in the shares of business software seller Medallia , which also offered quarterly reports that beat analysts' average expectations.
The stock performances of Zoom, Medallia and Crowdstrike have stood out since their IPOs in a year of larger and more well known firms which also launched their IPOs, such as Uber Technologies and Lyft, which did not fare well on the market.
Before the announcement of the quarterly results, the share price of Zoom had been trading at an appreciation of 157 per cent of the value of its initial public offering in April. The price increase for the shares of Crowdstrike was at 155 per cent of its IPO price which was launched in June and there was an increase of 74 per cent in the shares of Medallia which went public in July.
The fact that investors are getting more conscious and concerned about high valuations is reflected in the sell-offs of the shares of the company even after the companies reported better than expectations of analysts, even though the companies made losses.
"The strong print and weakness in the shares has been a recent pattern," Needham analyst Alex Henderson said. "Investors are leery of this up-today, down-tomorrow market and seem to be selling into strength, and unwilling to let them ride, preferring to take profits," Henderson added.
According to Refinitiv data, Medallia traded at a multiple of 37 prior to the drop while Crowdstrike traded earlier at about 85 times expected earnings for the next 12 months. On the other hand, Zoom traded at 38 times expected revenue over the next 12 months.
Compared to their year-over-year revenue growth their first quarters as a public company, the growth slowed down for both Zoom' and Crowdstrike year-over-year. The sale revenue growth for Zoom slowed down to 96 per cent in the second quarter compared to growth rate of 103 per cent in the first. The figure for Crowdstrike touched 94 per cent from 103 per cent.
On the other hand, the share price of Uber has dropped by 28 per cent of its IPO pricing of May even as the listing of the company was among the most anticipated one for the year. However the performance of the stocks has been the most disappointing. The shares of Uber’s competitor Lyft has dropped by 36 per cent from its price of its March IPO.