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The IPO market hits the sh-tter!

Oatly, Other Deflated IPO Stocks Haunt New-Issue Market

One in four companies that went public in 2020 and 2021 currently trades below $2 a share, risking delisting


When Oatly made its splashy stock-market debut in the spring of 2021, the Swedish company commanded a $10 billion valuation.


By Corrie Driebusch, WSJ


Dec. 19, 2022 5:30 am ET


Hundreds of companies that went public when the market for initial public offerings was booming have suffered such sharp reversals that they now face a stark reality: Their shares may never recover.


More than one in four of the nearly 600 companies that went public via a traditional IPO in 2020 or 2021—including oat-milk maker Oatly Group OTLY 1.12%increase; green up pointing triangle AB and online lender loanDepot Inc.—traded LDI -3.82%decrease; red down pointing triangle at less than $2 a share as of Friday’s market close, according to Dealogic data. Many companies that went public in the surge of mergers involving SPACs, or special-purpose acquisition companies, also are faring poorly.


When a stock trades below $1 on average for 30 days or other requirements aren’t met, the company is issued a warning by its stock exchange. It then has 180 days to bring the stock price back up and if it fails to do so is typically delisted or moved to an exchange with lower listing standards. That is bound to send an alarming signal to investors, customers and employees—especially when it comes so soon after an IPO—and sometimes presages a forced sale or other drastic action.


It is the latest issue plaguing the U.S. IPO market, which has been bedeviled by rising interest rates and sinking share prices and is on pace for its worst year in at least two decades as measured by money raised in traditional listings, according to Dealogic. Seeing so many newly public companies in danger of getting kicked off exchanges is likely to give pause to those contemplating listings and IPO investors alike.


Indeed, corporate executives and bankers and lawyers who work on IPOs say they aren’t holding their breath for a recovery in the market any time soon.


Many companies that went public in 2020 and 2021 were unprofitable and were valued based on big multiples of expected revenue. With a possible recession looming, those expectations have been reduced and investors are less willing to award big revenue multiples, crushing many of the companies’ valuations and limiting their options.


They can cut costs or raise money through so-called structured private funding rounds, as many are doing. Some are also considering reverse stock splits to raise their floundering share prices, some bankers and lawyers say, though such moves carry risks of their own and don’t always work.


Quanergy Systems Inc., QNGYQ 1.35%increase; green up pointing triangle which went public by merging with a SPAC this year, announced in October a 1-for-20 reverse split, which buoyed its stock, but only briefly. In November, Quanergy was delisted from the New York Stock Exchange, and its shares now trade over-the-counter and recently changed hands for around 9 cents apiece. Last week, Quanergy filed for bankruptcy protection and said it is seeking a sale for its business.


Others are seeking buyers, but the debt-financing market for such companies remains mostly dried up and few are eager to sell at depressed prices.


“A lot of companies got public in an exuberant market window amid a strong economic backdrop. Things have reversed on both fronts,” said Eddie Molloy, co-head of equity capital markets for the Americas at Morgan Stanley. “There are often no quick fixes.”


The IPO market faces its worst year in two decades, forcing some companies to slash their valuations by nearly 80% and seek funding in private markets. WSJ explains why the market for public offerings has frozen and what it would take to thaw. Photo Illustration: Ryan Trefes

When Oatly made its splashy stock-market debut in the spring of 2021, the Swedish company commanded a roughly $10 billion valuation. Investors scooped up the shares, excited about its socially conscious pitch—that consuming oat milk results in less greenhouse-gas emissions as compared with cow’s milk. But Oatly has struggled to build and operate factories in the U.S. and was forced to slash sales forecasts as it failed to meet demand and lost market share. Its stock now trades around $1.30 a share, down from its IPO price of $17 and high last year of $28.73, giving the company a market capitalization of $805 million through Friday’s close.


To help get the Nasdaq-listed shares headed back in the right direction, Oatly has announced $50 million in annual cost savings, in part from layoffs, and said it plans to be profitable by the end of the fourth quarter of 2023.


Oatly is trying to avoid the fate of Missfresh Ltd. MF 4.50%increase; green up pointing triangle Earlier this month, the Chinese online-grocery-delivery company received notice from Nasdaq that it no longer satisfies a stockholders’ equity requirement for continued listing. In its notice, Nasdaq said Missfresh has until Jan. 19, 2023, to submit a plan to regain compliance or satisfy an alternative to the requirement.


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The company, which made its debut in June 2021, said this summer that it had overstated its revenue for the first nine months of that year, sending its stock down more than 90% from its IPO price. In October, Missfresh did a 1-for-30 reverse stock split, and it now trades at $2.37 as of Friday’s close.


Weber Inc., WEBR -0.24%decrease; red down pointing triangle meanwhile, went public in August 2021 in a deal that valued the grill maker at nearly $5 billion on a fully diluted basis. In the ensuing months, it cut profit projections, blaming supply-chain disruptions. The stock fell more than 60% from its $14 IPO price before majority owner BDT Capital Partners LLC offered to take the company private again. This month, the parties agreed on a buyout plan that values Weber at roughly $2.3 billion.


There is a silver lining for some of these companies, bankers say: a lot of investor money eager to swoop in and help those believed to have a future.


In some cases, current stockholders are asking about buying more shares in bulk, such as electric-vehicle maker Lordstown Motors Corp.’s RIDE -1.06%decrease; red down pointing triangle investment this past month from Foxconn Technology Group. And while in past years, public mutual funds rushed to put money into private companies, now the opposite is happening—private-equity and venture-capital firms are looking to buy beaten-down stocks, lawyers and bankers say.


Such demand can be seen in the follow-on market, where public companies sell additional shares, according to Steve Maletzky, head of capital markets at William Blair & Co. In November, companies listed in the U.S. raised $9.8 billion through follow-on offerings, making it one of the most active months of the year for such activity, according to data from Dealogic.


“Investors are very interested in being part of the solution,” said Mr. Maletzky.


Write to Corrie Driebusch at corrie.driebusch@dowjones.com

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