October 25, 2019 / 4:30 PM / 24 days ago

CORRECTED-Upcoming reports from money-losing unicorns may test Wall Street's patience

 (Corrects to show Tuesday will be the second time, not first
time, Beyond Meat insiders can sell shares since the co's IPO)
    By Noel Randewich
    SAN FRANCISCO, Oct 25 (Reuters) - A slew of upcoming
quarterly reports from companies including Beyond Meat and Uber
may test Wall Street's waning patience for money-losing former
unicorn startups.
    Investors have become pickier in recent months, a trend
highlighted recently when office-sharing startup WeWork was
forced to scuttle its much-anticipated market debut due to
skepticism about its business model, corporate governance and
burgeoning losses.
    Stocks that soared following IPOs earlier this year, like
Beyond Meat          and Pinterest         , have fallen back
toward earth. Stocks that failed to find traction after their
IPOs, like Lyft          and Uber Technologies         , have
deepened their declines.
    While the S&P 500 approaches record highs, worries about an
aging bull market and fallout from the U.S.-China trade war are
making investors less willing to roll the dice on risky bets,
including newly listed companies with no clear paths to
profitability.
    "People are rolling up their sleeves and saying, 'I have to
do more analysis on these companies, I need to understand its
fundamentals and the management team, and how it will eventually
make money'," said Jerry Raio, head of capital markets at
ClickIPO, a small company aiming to give retail investors better
access to IPOs. 
    Underscoring Wall Street's increasing selectiveness,
SmileDirectClub         and Peloton Interactive          have
tumbled 49% and 24%, respectively, from their September IPOs,
even after analysts from the banks that underwrote their market
debuts published a deluge of "buy" recommendations.             
            
    Beyond Meat on Monday is expected by analysts, on average,
to report revenues that quadrupled from a year ago to $82
million as the faux meat seller makes early inroads into grocery
stores and fast food restaurants, including McDonald's        .
Analysts on average expect a quarterly net profit of $2.48
million on a non-GAAP basis from Beyond Meat, and a loss of
$1.66 million under GAAP. 
    The stock has tumbled 33% in October, still leaving the gain
since its May IPO at about 300%. The day after Monday's report,
Beyond Meat employees and insiders will be permitted for the
second time since the IPO to sell their shares, and they may be
tempted to, given the stock's still mammoth return.
    This year saw a series of IPOs from "unicorns" - rare
startups valued at over $1 billion - as their investors rushed
to tap equity markets near record highs. But many investors of
late are refocusing on safer investments.
   Unprofitable U.S. companies holding IPOs this year have had a
median stock return of 0%, compared to a median increase of 2%
for profitable companies that held IPOs, according to a Reuters
analysis. The S&P 500 has grown 21% in 2019.
    "You're seeing a broad rotation with investors moving out of
high valuation companies. Beyond Meat is executing incredibly
well, but its valuation is way ahead of itself by any metric,"
said Brad Gastwirth, chief technology strategist at Wedbush
Securities.
    Lyft surged last Tuesday after saying it would become
profitable at the end of 2021, sooner than analysts expected.
But shares of the ride-hailing company, which reports on
Wednesday, remain down 39% since its March IPO.             
    Uber, which has lost a quarter of its value since its May
IPO, reports its results on Nov. 4. It is expected to post a 25%
increase in revenue to $3.70 billion and a loss of $1.44
billion. For full 2019, analysts expect revenue growth of 24%,
down from 42% growth in 2018.  
    Short interest in Peloton Interactive         , which sells
stationary bikes and subscriptions for streaming exercise
classes, stands at around 77% of its float, making it one of the
U.S. market's most shorted stocks, according to S3 Partners.
Analysts on average expect Peloton's report on Nov. 5 to show a
76% jump in revenue to $197 million and a $107 million non-GAAP
loss, up from a loss of $55 million a year ago.  
    Reflecting Wall Street's increased nervousness, Zoom Video
Communications       , Crowdstrike Holdings          and
Medallia         , three of this year's more successful IPOs,
have each fallen more than 25% since Sept. 5, when they reported
quarterly results that exceeded consensus analyst expectations.
            

 (Reporting by Noel Randewich; Editing by Alden Bentley and Tom
Brown)
  
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