WeWork’s aborted listing may herald the end of a “glory period” for amply-funded private companies with lofty valuations as investors dissect their prospects more rigorously, according to the head of Capital Group, one of the world’s biggest asset managers.
There has been a spate of initial public offerings from high-profile, disruptive technology companies this year, but many have seen their private valuations come tumbling after listing on the stock market.
WeWork last week delayed its own IPO amid concerns over its big losses, corporate governance and eccentric chief executive and founder, Adam Neumann. The real estate company had been valued at $47bn in its last private investment round from backer SoftBank, but its investment bank advisers were forced to ratchet down their price estimates before finally deciding to shelve the listing last week.
Tim Armour, the chairman and chief executive of Capital Group — the investment group with $1.8tn of assets in its American Funds range — said that WeWork’s aborted IPO was emblematic of an era of frothy private market valuations that could now be winding down.
“We have been through one of the glory periods for companies to remain private and get funding and do things without making money for a long period of time. I question whether that will continue,” he said at the FT’s Future of Asset Management conference last week.
“Money was easy and they got funded, I hope it turns out to be a great business, but the reality is that the public markets scrutinise more at times,” he added.
Several high-profile Silicon Valley unicorns including Uber, Lyft and Spotify have seen their shares dip since going public in recent years. The stock of Slack, the messaging company, jumped 48 per cent when it started trading in June, but has slid 34 per cent since then, while Dropbox has trodden water.
Larry Ellison, the founder and chairman of Oracle, said last week that despite his friendship with SoftBank’s Masayoshi Son, he thought that WeWork and Uber — both big bets in SoftBank’s Saudi Arabia-backed VisionFund — were “almost worthless”.
In a conversation with entrepreneurs at his house, the technology magnate said that Uber’s decision to take big losses in order to gain market share was idiotic given the lack of user loyalty, and ridiculed WeWork’s argument that it was a technology company rather than a real estate company.
“WeWork rents a building from me, and breaks it up and then rents it,” Mr Ellison said, according to Barron’s. “They say, ‘We’re a technology company, and we want a tech multiple.’ It’s bizarre.”
Mr Armour stressed that “some of these companies are going to be big successful companies”, but argued their euphoric valuations were “symptomatic of the period we have been in, where anything associated with the internet, a new way of doing things, of disruption — there’s been a pass on how long it takes [on] the road to profitability”.