Coronavirus and Its Impact on Valuations and IPOs

The coronavirus outbreak has made a major impact on the stock market. Experts have pointed to fears that the market will remain struggling for some time, even after the virus is properly contained. So, how does this impact valuations and IPOs today, tomorrow, and even months from now?

First and foremost, it is important to remember that a large multitude of factors contribute to variations in the financial market. With valuation charts all over the place, stocks have suffered accordingly. Nike is probably the best example of this. The fallout of the virus’ presence in China means a big hit to Nike, who attributed 40 percent of its profits in the 2019 fiscal year to the country. In addition to its past and current reliance on China, Nike was also looking to China in the future as growth in that region has been faster than anywhere else.

Some of the biggest fallout for Nike is projected to be:

  • A massive reduction to its revenue
  • Much lower margins
  • Sharp decline of net income
  • A more than $17 billion reduction in valuation

As the fastest-growing and most profitable area for Nike, China’s impact on the stock is enormous. But what about companies who have yet to go public? How does the coronavirus impact IPOs in the future? Airbnb Inc. is the best example of the potential fallout.

Airbnb Inc. was set to be one of the most exciting and anticipated public listings of the year. The plan had been to start the process of hitting the stock market this year, but that may all change due to the coronavirus. As one of the most well-known and successful home-sharing services available, Airbnb Inc. depends upon travel, and a lot of it, to remain thriving. Unfortunately, travel restrictions have only just begun and that means much less tourism across the globe.

With more than 7 million listings in cities all over the world, Airbnb Inc.’s business depends upon travelers. As such, the coronavirus may very well delay the company’s public listing plans. Fruitful stock market entrances are largely dependent upon proven growth and prospective future earnings. If the months preceding their IPO are laced with slowed sales, Airbnb Inc. might find themselves in hot water.

From corporations who depend on thriving tourism to corporations who are thriving in countries like China, the coronavirus outbreak can have lasting effects. With the threat of canceling the Olympics, business owners are certainly taking the virus seriously and planning for the impact on their company. With the outlook of a slow market recovery, investors should plan accordingly.