A series of IPO crashes, as investors turned their backs on some of Silicon Valley's most prized companies, has prompted forecasts of a broader reset in valuations after the long tech boom.
Endeavor Group, the Hollywood talent agency that has expanded rapidly into new areas of digital media, became the latest company to pull its initial public offering, after the fitness bike start-up Peloton tumbled to one of the worst first-day performances of the year on Thursday.
Wall Street has also been spooked by the collapse of a planned IPO for office space rental company WeWork, which repeatedly slashed its mooted valuation after investors balked at its huge losses and corporate governance.
"I think we have reached a turning point in terms of valuations," said Jay Ritter, a finance professor at the University of Florida. "There's a reset going on right now. Sanity has returned."
The sharp reversal in sentiment follows signs of growing doubts among stock market investors about the prospects for some of Silicon Valley's most heavily touted consumer tech "unicorns", or companies that were valued at more than US$1 billion ($1.5b) in the private market.
Of the five most valuable unicorns to make it to Wall Street this year, three — Uber, Lyft and Peloton — have seen their stocks trade down since listing, with an average decline of 28 per cent.
The social networking site Pinterest fared better and is up 44 per cent, while video conferencing service Zoom has climbed 120 per cent, pointing to the much stronger reception for tech companies that sell to business customers.
"When you look at Uber, Lyft and Peloton, the deals that haven't worked were priced too high," said Phil Orlando, chief equity strategist for Federated Investors.
Many of the largest tech companies chose to delay their arrival on Wall Street for years, preferring to tap the large amounts of capital that flooded into the private markets, driving up valuations. The ready availability of cash had also given rise to businesses that have become addicted to repeated injections of capital, some investors warned.
Susan Schmidt, head of US equities for Aviva Investors, said this week's activity pointed to a shift in sentiment as investors began to question the high valuations start-ups can build by churning through private capital.
"Investors have temporarily ignored the fact that they need a return," Schmidt said. "In the private market you're not forced to face reality like in public markets."
Some experts said the cold water that Wall Street has poured on some of the hottest new tech companies points to a reset in valuations for other companies, although it is unlikely to match the collapse seen during the dotcom bust.
"The market is frothy, but it's not obvious there's a bubble, unlike 20 years ago," Ritter said.
Despite setbacks, there have been signs over the past week that the Silicon Valley boom is still alive, at least for some companies.
Airbnb took its first, cautious steps to Wall Street, signalling that it planned to list next year, while Stripe, a San Francisco payments company, was valued in a private fundraising at US$35b, 55 per cent more than its last round early this year.
Written by: Richard Waters and Richard Henderson
© Financial Times