By William Davis
It’s well known that 2019 promises to be one of the most hectic years ever for the IPO market. The new-issue calendar’s already full, with cool kids like Lyft, Uber, AirBnB, and Pinterest planning to earn their ticker symbols in the public markets. Meanwhile other highly valued youngsters such as WeWork, Robinhood, and Peloton are waiting in the hall to see how the big boys do before they jump into the mix. There is, in fact, a strong possibility that 2019 will be the biggest year ever for IPO proceeds. And who’s leading this little Breakfast Club out of the gymnasium? Why, it’s our 165-year-old friend from the Gold Rush, Levi Strauss & Co.
Don’t throw the past away…
True enough, the relatively ancient blue-jean maker began trading Thursday morning on the New York Stock Exchange under the LEVI ticker symbol. (In one of the spiffier moves of all time, the exchange loosened its dress code for the day so traders could wear denim.) The casual look apparently worked for the old fellow, with LEVI shares jumping 32% on the day, the third-biggest first-day gain ever for a big, non-technology offering since a guy from Bavaria started selling riveted work pants in California.
You might need it some rainy day…
The fashionable question, though, is why would a company that credits itself with inventing blue jeans in 1873 want the discomfort of going public in the age of stretchy pants for men? Easy answer: 271 investors who have closely held company shares for decades. Made up of fifth-, sixth- or seventh-generation descendants of Levi Strauss – who left the company to his four nephews – this group is itching for more liquidity than regular dividends offer. Raising cash is always in style you see.
Dreams can come true again…
So, too, in this age of the Unicorn is the old-fashioned practice of burning cash. Take the next new kid on the trading block, for example. Lyft, the ride-sharing company whose initial public offering is expected this week, posted a suspension-busting loss of $911 million last year, more than any U.S. startup has ever lost in the 12 months leading to its IPO. And the year’s only getting started – six-year old Lyft’s loss is likely to soon be eclipsed by 10-year-old Uber, which has been losing more than $800 million a quarter. Apparently, it’s fairly easy to hail private capital passengers.
When everything old is new again.
Fact is, Lyft and Uber have raised more venture capital than any U.S. startup that has ever gone public. A seemingly endless supply of private investors has largely bet that new services and products can rapidly spread around the globe and have been more tolerant of losses piling up as long as there is revenue growth. While similar dynamics were widespread during the dot-com boom, it’s probably worth remembering that the most famous cash-burner of them all had negative free cash flow for four of its first five years as a public company. Did you know you can get Levi’s Straight Fit Jeans on Amazon?
What the facts are saying…
- Friday’s 1.9% slide for the S&P 500 was the benchmark’s biggest one-day drop since Jan. 3. The index finished the day at 2800.71, narrowly staying above the closely watched psychological level of 2800 that has capped rallies several times since the start of the fourth quarter.
- The 10-year U.S. Treasury yield fell 0.136 percentage points last week, its largest weekly decline since the week ended Dec. 7. That week, the S&P 500 fell 4.6%, compared to a 0.8% drop last week
- On this day in 1966, a Bank of America proposed that Bankamericard should expand outside the bank’s home state of California and offer credit-card services to merchants and retail customers nationwide. The Visa card and the ability to borrow and spend anywhere at any time were born.
What the numbers are saying…
- $11.6 trillion
The value of assets overseen by U.S. money managers who consider environmental, social, and governance – ESG – scores to pick stocks and bonds, up from $8.1 trillion in 2016
What folks at the front of the trading line are saying…
“Liquidity has fallen dramatically in the last few months.”
- Darren Smith, a U.K.-based derivatives trader with UBS
“Firms that need to do large-size trades just don’t feel as comfortable doing them on (traditional) exchanges like they did in the past. I think that’s part and parcel of what we’re seeing here.”
- Rick Lane, chief executive of Chicago-based financial software firm Trading Technologies
“The weird thing is that markets haven’t been that volatile this quarter, but order-book depth hasn’t really recovered.”
- Hovannes Jagaspanyan, an algorithmic trader in the Chicago office of Quantlab, a high-speed trading firm
“Particularly if the market goes one way, the impact of diminished liquidity is going to be exacerbated in either an up move or a down move.”
- Hallie Martin, a strategist with Deutsche Bank in New York
What folks with an ear to the Street are saying…
“A long-term tailwind to stocks from expanding profit margins is at risk of flipping into reverse.”
Heard on the Street columnist Justin Lahart
“The economy will probably climb out of the funk it fell into in the first quarter, and [the] Federal Reserve knows it. But there is a difference between probably and certainly.”
Heard on the Street columnist Justin Lahart
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