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

By Noel Randewich

SAN FRANCISCO (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 (O:BYND) and Pinterest (N:PINS), have fallen back toward earth. Stocks that failed to find traction after their IPOs, like Lyft (O:LYFT) and Uber Technologies (N:UBER), 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 (O:SDC) and Peloton Interactive (O:PTON) 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 (N:MCD). 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 first 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 (O:PTON), 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 (O:ZM), Crowdstrike Holdings (O:CRWD) and Medallia (N:MDLA), 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.