Cazoo crash, skidding down a 99.9% share fall, puts an end to the American dream

Officials at the London Stock Exchange grumble about the unfairness of the world. They complain that while high-profile IPO failures in Britain are remembered for many years, IPO disasters on the New York Stock Exchange are quickly forgotten, as locals look to the next big thing. This complaint is not without merit. Take Cazoo. Its car accident for investors would have certainly generated more headlines in London.

Alex Chesterman said that the founder of a UK-based website for used cars chose to list in New York City by 2021, because “US investors better understand high-growth companies”, according to Alex Chesterman. Ho, ho. The American estimate that Cazoo is worth $8bn was wrong.

Cazoo, whose shares have fallen 99.9% from their debut this year, quietly informed its shareholders that the end may be near. It has submitted a notice announcing its intention to appoint administrator in the London high court for some of its “material subsidiary”.

Cazoo’s collapse is unfortunate, not least for the employees who are now in a much smaller number. Cazoo’s reputation for outstanding customer service was well-deserved. The company has also proven that customers are willing to purchase cars online. It has sold over 160,000 cars since its launch in 2019.

The business model led to staggering losses of £700m by 2022. A retreat from continental Europe was one of the many “realignments” that took place. Cazoo announced in March that it would sell all of its stock and switch to an “online marketplace model which will serve the car dealers they were established to compete against.

Cazoo’s marketing funds were used to promote sporting events and football clubs, including Aston Villa and Everton. The company was a godsend to the sports sponsorship business.

The lesson of this stock market is to be more skeptical of the stereotype that UK fund manager are dinosaurs who do not “get” tech companies that burn cash. Investors can make rational decisions. It is to their credit if they would not award Cazoo an estimated valuation of £6bn or more in London by 2021.

Deliveroo was one of the few that made it in London for the 2021 vintage. It was absurdly overpriced, with shares down by two-thirds compared to the original £7.6bn valuation. However, Deliveroo is not a “floperoo”, like Cazoo. Deliveroo has not collapsed, it is still in business and is predicting profits. It is also buying back its shares.

Another lesson for UK companies considering a Cazoo style path to US markets is that the UK record there ain’t good. There are some successes, such as Oxford-based Immunocore Holdings or Arm Holdings. But the statistics overall are not good. The London Stock Exchange inspected public numbers and found that of the 20 UK firms that raised more than $100m in the US during the last decade, 8 have already delisted. Only three are trading at their IPO prices, and the others are trading down on average by 71%.

These numbers do not include UK exports such as Cazoo or Arrival which failed to launch an electric van. They adopted the briefly popular method of going public via a Special Purpose Acquisition Company, or Spac. The performance in this category was worse. All of this does not change the fact that London’s stock exchange desperately needs new companies. At least the Spac nonsense was avoided.