'US Tech Companies Face Bankruptcy Threat Amid Pandemic IPOs'

Double Hardship of Earnings Decline and Stock Price Plunge
8 SPAC-Listed Companies Bankrupt

During the COVID-19 pandemic, U.S. technology companies that went public (IPO) amid abundant liquidity are now facing a double blow of declining earnings and stock prices. As the economic recession worsens investment sentiment toward growth stocks and liquidity constraints intensify, an increasing number of companies are being pushed toward bankruptcy risk.

According to financial data provider Dealogic on the 5th (local time), the stock prices of 150 U.S. technology companies that went public between 2020 and 2021 have fallen by an average of 35%. These companies led the IPO investment boom by raising at least $100 million (approximately 129.7 billion KRW), fueled by SPAC (Special Purpose Acquisition Company) investments and meme culture.

Rivian, which debuted spectacularly on the stock market as the "Next Tesla," experienced the largest drop, with its stock price falling to one-fifth of its initial value. Rivian recorded a market capitalization of $146.7 billion just five days after its Nasdaq listing on November 10, 2021, ranking third globally among automakers by market cap. Initial excitement over the launch of its first electric pickup truck and expectations that it would lead the U.S. electric vehicle market drove its early stock price to $103.69, but it has since dropped to $16.92 as of the latest closing price, a decline of 83.68%.

The end of the pandemic, followed by high-intensity tightening policies and inflation worldwide, dried up liquidity, causing investors to shift from growth stocks to safe assets, sharply worsening investment sentiment. These companies, whose valuations soared based solely on expectations, have been caught in bubble debates as their stock prices were inflated beyond their actual value, lowering market expectations further.

Rivian further deepened its stock price decline after reporting earnings below market expectations. In the fourth quarter of last year, Rivian posted a loss per share of $1.87, significantly better than the market estimate of $1.94. CEO R.J. Scaringe revealed during a conference call after the earnings announcement that the company spent $6.4 billion last year, fueling liquidity crisis concerns. This $6.4 billion is four times Rivian's total revenue of $1.658 billion for the year.

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Among 91 technology companies that completed their earnings reports last year, including Rivian, 74 posted losses. Only 17 companies succeeded in turning a profit. As their earnings and financial conditions deteriorated, these companies exhausted more than 37% of the funds raised through their IPOs within two to three years. Facing worsening cash shortages, some companies have resorted to high-interest debt or issuing convertible bonds (CB) for emergency funding, but even these measures are proving insufficient.

Expectations for these loss-making companies to turn profitable have diminished, leading to increased caution among investors. Greg Becker, CEO of Silicon Valley Bank (SVB), a well-known U.S. venture capital bank, pointed out, "Loan requests from technology companies are rising sharply, but for some companies, no financing options are viable."

Many companies, which should be expanding their operations, have instead initiated high-intensity restructuring to cut costs. According to Layoffs.fyi, which tracks layoffs at global technology companies, 38 tech companies that went public during the pandemic have already started workforce reductions to save costs. Bloomberg reports that at least eight companies that went public via SPACs have gone bankrupt as their liquidity crises reached critical levels. The time from IPO to bankruptcy is also shortening. QuantumScape, a U.S. autonomous driving technology company, took 10 months from IPO to bankruptcy filing, while Fast Radius, a 3D construction printing robot company, went bankrupt nine months after going public.

Experts warn that the poor stock performance of IPO companies is eroding investor confidence and will prolong the market downturn. The IPO market, which experienced its worst recession last year, is unlikely to recover this year. Andrea Schultz, a partner at Grant Thornton, a global accounting firm serving major technology clients, said, "The number of companies seeking IPOs will significantly decrease for the time being," adding that many companies are waiting to build some operational history and maturity before considering going public to receive a proper valuation.