Extreme valuations signal late-stage IPO speculation
The bear case argued is that recent high-profile IPOs are trading at unsustainable price-to-sales multiples, indicating a highly speculative late-cycle market environment.
The argument
The guest pointed out that historical tech IPOs like Google went public at single-digit revenue multiples, whereas recent listings have debuted at 20 to 70 times revenue. Historically, these highly anticipated IPOs cut in half during their first year.
The thesis, stress-tested
✓ What validates it
- ✓Newly public companies trading down significantly from their first-day closing prices within 12 months
- ✓A decline in the volume of new IPO filings as market appetite cools
▸ Risks discussed
- ▸Strong secular growth could allow some high-multiple companies to grow into their valuations
- ▸Persistent retail investor enthusiasm can keep speculative multiples elevated longer than expected
Hear it yourself
"And the best example of that is when Google went public, I think it was in 2004, it was at eight and a half times revenue. But eight and a half is very different from 20 to 70 times revenue."
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