Adore Beauty's founders cashed out $90M at a $653M float - then shares fell 90%

Adore Beauty, founded by Kate Morris in 1999 as one of Australia's first e-commerce companies, listed on the ASX in October 2020 at $6.75 a share - a $653 million valuation for a business with $5 million of earnings and a $1.234 million statutory net loss in FY20. Morris and co-founder James Height scored about $45 million each selling into the float and Quadrant Private Equity $137 million, while a media campaign pitched the stock to first-time women investors as a relatable pandemic winner.

The doubts were there from the start: the company had been valued as a technology company when it looked and acted like a retailer, and the float was timed to the peak of the e-commerce boom. Institutional investors admitted they 'underestimated the COVID boost' and called the pitch 'dressing up'. Within four months the shares were sliding as revenue and customer numbers, though on prospectus forecasts, fell below inflated market expectations - and by October 2023 the price hit 71c against the $7.42 day-one intraday high, wiping more than $500 million off the market capitalisation.

In November 2023 Adore Beauty rejected a takeover approach from London-listed THG - which had nearly invested in 2019 before Quadrant stepped in instead - at $1.25 to $1.30 a share as too low; the stock rose to $1.35 on the news, still a fraction of the issue price.

The IPO was priced off a pandemic demand spike that both bankers and investors mistook for durable, organic growth.

A retailer with $5M of earnings and a net loss was sold at a technology-company multiple.

Founders and the private equity backer sold roughly $227M of stock into the float, leaving new investors holding the peak valuation.

Post-listing results, though on forecast, kept missing market expectations that the pre-float hype had inflated.

Selling shareholders set the price: when a pandemic surge is booked as organic growth and a retailer is pitched as tech, the market eventually reprices both.

Adore Beauty carried on under a new CEO, Tamalin Morton, who replaced Tennealle O'Shannessy in 2023, and defended its record: 'Adore Beauty has met or exceeded all forecasts that were included in the IPO prospectus.' Quarterly revenue of $47.5 million, up 4.7 per cent, kept it growing; value investors such as Spheria bought in at the lows, while the rejected THG bid left the stock at $1.35 - about a fifth of the 2020 issue price.