The old adage that misery loves company sure seems to be true in the world of tech right now — especially when it comes to stepping from Silicon Valley onto Wall Street.
Just take a look at the chart below, which is full of bloodshed to say the least.
A company’s IPO price marks a huge psychological landmark for investors. Most stocks move higher during their first day on Wall Street, with Renaissance Capital clocking the average one-day gain at 14% last year. Highly anticipated tech players often enjoy an even larger pop, which is why GPRO more than doubled on its first day in 2014 and FIT closed nearly 50% higher when it hit the public markets last summer.
Thus, a drop back below the IPO price means those early gains have been erased and then some. And, of course, it also makes for some clicky headlines:
- “Square falls below its IPO price, while Twitter stock reaches record low” (MarketWatch)
- “Grounded: GoPro crashes below IPO price” (CNN)
- “Here’s why Fitbit dropped below IPO price and has lost more than a third of its value” (Silicon Valley Business Journal)
The fact that once-beloved companies like Twitter (TWTR) and GoPro are now respectively worth 35% and 60% less than they were initially priced — and that there’s ongoing publicity surrounding their declines — is likely playing a role in the recent IPO slowdown. January marked the first dry month for IPOs since 2011.
But the overarching narrative of up-and-coming tech darlings falling short could potentially be snowballing. Investors, perhaps in part due to the rockiness of the broader markets right now, seem to be lumping these younger tech names together, meaning the selloff for some may be overdone.
Fitbit stock, for example, hit Wall Street about a year after GoPro and is often lumped in the same dilemma as the camera-maker. Bears have called both “single-use” companies, citing the falling barriers to entry as a driver of increased competition and have expressed concerned about maturing end markets.
But FIT actually has more in common with another tech company — and one that investors show plenty of love — Facebook (FB).
Why Fitbit Stock Might Surprise You
The comparison between FIT and GPRO stock feels more natural because both are seen as hardware companies (and, once again, because both are taking a beating). Facebook, on the other hand, is a social network. But the distinction between hardware and software, and websites and other content served on top of it, is increasingly blurred.
GoPro, to an extent, is a software company: In fact, its easy-to-use editing software has been criticized as a barrier to expanding its user base. The company’s founder and CEO nodded to this in a conference call earlier this week, saying: “We recognize the need to develop software solutions that make it easier for our customers to offload, access and edit their GoPro content.”
Fitbit’s software (and software partnerships) are just as important as its actual wearables, while Facebook is heading to this middle ground from the opposite direction with the launch of its virtual reality headset.
Meanwhile, there are several important distinctions between GoPro and Fitbit (even beyond the fact that Fitbit seems well ahead of GoPro in software, as mentioned, and is enjoying better reception of its latest hardware.) The debut of the new Alta provided Fitbit stock some relief, while GoPro was forced to slice the price for its most recent model, the Hero4, not once, but twice.
More specifically, there are two main macro trends in Fitbit’s corner which spark a promising Facebook comparison.