Tech IPOs Reach Values Not Seen Since 2000 Bubble

thebalancemoney.com:

Technology companies are selling for an average of 23.9 times their last 12 months’ revenue in initial public offerings (IPOs), the highest price-to-sales ratio since the tech bubble of 2000, recent research from a University of Florida professor said.

After seeing ratios of 43 in 1999 and 49.5 in 2000, price-to-sales ratios slumped to single digits between 2002 and 2017, the research showed. But this year’s median price-to-sales ratio is now more than twice what it was in 2018 and 2019, when the market valued tech companies with IPOs at an average of 11.7 and 10.4 times their previous 12 months’ earnings.

“It is looking more and more like 20-21 years ago,” said Jay Ritter, a professor of finance at the University of Florida who researches and tracks the sales-to-price ratios of tech stocks. Ritter provided his research to The Balance. “One difference is that in 1999-2000, the tech companies going public were mainly young and unproven, but with high valuations. Today, they are more established, but with high valuations.”

Despite the 2020 recession and volatile stock market, this year has seen a number of tech IPOs where valuation dwarfed prior earnings. DoorDash, founded in 2013, was valued at $60.2 billion when it made its debut on Dec. 9, despite only claiming $885 million in revenue in 2019, and $1.9 billion through September 2020. Snowflake, a data company founded in 2012, had $264.7 million in revenue for the fiscal year ending Jan. 31, $242 million for the next six months through July, and was valued at $70.26 billion when it went public in September. Palantir Technologies, a software company founded in 2003, had $742.6 million in revenue in 2019, $481.2 million in the first half of