Deflated IPO Stocks, Led by Oatly, Cast a Shadow Over the New-Issue Market

When the market for initial public offerings was thriving, many businesses took the opportunity to go public. Unfortunately, their stocks have since plummeted, leaving them with the grim realization that their shares may never bounce back.

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In 2020 and 2021, more than a quarter of the nearly 600 businesses that conducted a traditional initial public offering (IPO) were successful, including the oat-milk producer Oatly Group OTLY 2.26%. AB and loanDepot Inc., an online lender, saw their stock prices drop by 0.62%.

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The stock market closed on Friday with many companies that had gone public through special-purpose acquisition companies (SPACs) trading at less than $2 per share, as reported by Dealogic data. Unfortunately, these companies are not doing well.

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When a stock trades below $1 on average for 30 days or other requirements are not fulfilled, the stock exchange will issue a warning to the company. The company then has 180 days to raise the stock price back up, and if it fails to do so, it is usually delisted or moved to an exchange with lower listing standards. This can be a cause for alarm for investors, customers, and employees, especially when it occurs shortly after an IPO, and can sometimes lead to a forced sale or other drastic measures.

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The U.S. IPO market is facing a new challenge, as rising interest rates and falling share prices have caused it to be on track for its worst year in the past two decades, as reported by Dealogic. This has caused many newly public companies to be in danger of being delisted, which could be a cause for concern for those considering an IPO and those who invest in them.

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Those who work in the corporate world, such as executives, bankers, and lawyers, who are involved in IPOs do not anticipate a quick revival of the market.
In 2020 and 2021, many companies that went public were not profitable and were valued based on high multiples of anticipated revenue. With a potential recession on the horizon, those expectations have been lowered and investors are less inclined to give out large revenue multiples, causing a decrease in the companies' valuations and limiting their options.

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Businesses are looking for ways to reduce expenses or increase capital, and one option is to pursue structured private funding rounds. Additionally, some are considering reverse stock splits to try and improve their stock prices, though this approach has its own risks and may not be successful. Bankers and lawyers have noted this trend.
Quanergy Systems Inc. is a company that has seen a 12.50% increase in its stock.

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Quanergy, which became a publicly traded company through a merger with a SPAC in 2021, declared a 1-for-20 reverse split in October, which gave its stock a temporary boost. In November, the New York Stock Exchange delisted Quanergy, and its shares are now traded over-the-counter, with a current price of around 9 cents. Last week, Quanergy filed for bankruptcy and is now looking for a buyer for its business.

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Many companies are looking for buyers, however the debt-financing market for these businesses is still largely inactive and few are willing to accept reduced prices.
Eddie Molloy, co-head of equity capital markets for the Americas at Morgan Stanley, noted that many companies had gone public during a period of high market enthusiasm and a strong economy. However, he added that the situation has since changed and that there are usually no easy solutions.

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When Oatly made its debut on the stock market in 2021, it was valued at around $10 billion. Investors were drawn to the company's socially conscious message that oat milk produces fewer greenhouse gas emissions than cow's milk. Unfortunately, Oatly has had difficulty constructing and running factories in the U.S., leading to a decrease in sales and market share. As a result, the stock is now trading at $1.30 per share, a significant drop from its IPO price of $17 and its peak of $28.73 last year. This has resulted in a market capitalization of $805 million as of Friday's close.

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In an effort to get the Nasdaq-listed shares back on track, Oatly has declared that they will be cutting $50 million in costs each year, which includes layoffs. Additionally, they have stated that they anticipate to be profitable by the end of the fourth quarter of 2023. Oatly is attempting to prevent the same outcome that Missfresh Ltd. experienced.

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At the beginning of this month, Missfresh, a Chinese online grocery delivery company, was informed by Nasdaq that it no longer meets the stockholders' equity requirement for continued listing. The notice stated that Missfresh has until January 19, 2023 to submit a plan to regain compliance or fulfill an alternative to the requirement.

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Missfresh, a company that launched in June 2021, announced in the summer that their revenue had been overstated for the first nine months of that year, causing their stock to plummet more than 90% from its initial public offering (IPO) price. In October, the company did a 1-for-30 reverse stock split, and as of Friday's close, it is trading at $2.37.

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Weber Inc. is represented by the stock symbol WEBR with a 0.00% change.
In August 2021, Weber went public in a transaction that valued the grill manufacturer at almost ^{$5 billion} on a fully diluted basis. Unfortunately, in the following months, the company had to reduce its profit expectations due to supply-chain issues. Consequently, the stock dropped more than 60% from its original $14 IPO price before BDT Capital Partners LLC, the majority owner, proposed to take the company private again. This month, the parties involved reached an agreement on a buyout plan that values Weber at approximately $2.3 billion.

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Despite the current economic climate, some companies have a glimmer of hope. Bankers have noted that there is a large amount of investor money available to assist those businesses that are believed to have a promising future. In certain situations, existing shareholders are inquiring about purchasing larger amounts of shares, like those of Lordstown Motors Corp., a manufacturer of electric vehicles, which has a RIDE 2.36% rate.

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Foxconn Technology Group made a noteworthy investment last month. In contrast to the past, when public mutual funds were eager to invest in private companies, private-equity and venture-capital firms are now seeking to purchase devalued stocks, according to lawyers and bankers.

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Steve Maletzky, head of capital markets at William Blair & Co., has observed a high demand in the follow-on market, where public companies are selling additional shares. Data from Dealogic reveals that November was one of the most active months of the year for such activity, with U.S. companies raising $9.8 billion through follow-on offerings.