When companies go public, there’s a lot of hype in the lead up. However, while IPO investing used to be a sure way to make a quick buck, that isn’t the case any more. Now traders who are interested in buying a newly public company generally need to see a long-term growth trajectory in order to get in at the beginning, and spotting a business that isn’t a dud at that stage can be tricky.
Unlike stocks that have been traded for some time, private companies don’t have the same amount of analyst coverage, and although they release a prospectus, it doesn’t have a third party viewpoint to uncover chinks in their armor.
For that reason, a huge percentage of IPOs end up losing money rather than earning it- especially right out of the gate. With that in mind, many traders wait until the lock-up period expires and insiders are given the option to sell their shares.
If a sell-off materializes following that period, it’s a good indication that those close to the company aren’t hopefully about its future. But if shares are steady, it can be a sign that things look promising.
Last year the market welcomed a handful of heavily hyped companies to the market and the majority almost immediately started to decline. Now, with a year under their belts, here’s a look at three of 2017’s hottest IPOs.
Snapchat Is Stuck at Go
It would be impossible to talk about last year’s IPOs without mentioning SNAP Inc. (NYSE:SNAP), easily the most anticipated initial public offering of the year. Snap talked a big game and many believed that the company would eventually de-throne Facebook Inc. (NASDAQ:FB) as the top social media company.
However, the shares touched just over $27 per share on their first trading day in March 2017 and spend most of the rest of the year below $18. SNAP stock’s $10.58 price tag today serves as a cautionary tale about IPO investing- you can’t always believe the hype.
Since being held up as the next great thing in the social media space, SNAP has been criticized for having a lack of direction and the inability to generate revenue under it’s current model.
During SNAP’s most recent earnings report analysts were already talking about the challenges the company will face “turning its business model around.” That’s worrisome considering the firm only gained its public status just a year ago.
The bottom line on SNAP stock is that the firm was overly optimistic about its prospects as a competitor in the social media space. Investors who wanted to get in on the ground level jumped on the bandwagon and so far, it’s been a steady ride to the bottom.
Blue Apron Doesn’t Have a Solid Plan
Another big name people were excited to see come to market in 2017 was meal deliver kit maker Blue Apron Holdings Inc. (NYSE:APRN). APRN stock finished its first day of trading at $9.34 per share, but today the company trades at just $2.81 per share and even at that massive discount, analysts still don’t think it’s a bargain.
APRN stock is, unfortunately, another example of how IPO investing can be extremely risky. When APRN launched, many were impressed by the number of new signups the company was receiving. Meal delivery kits looked like they were about to take-off.
However, it soon became apparent that APRN struggled to hold on to subscribers which meant the firm had to spend heavily in order to find new sign ups. The space became ultra-competitive as everyone from Amazon.com Inc. (NASDAQ:AMZN) to Kroger Inc. (NYSE:KR) rolled out their own versions.
Now, there is very little reason to buy APRN stock other than it’s potential as a takeover target. While it’s a long-shot, APRN could eventually get bought out by a retailer like Costco Wholesale Corporation (NASDAQ:COST) Target Inc. (NYSE:TGT) or Walmart Stores Inc. (NYSE:WMT) as they work to hold on to their space in the ever-shifting grocery landscape.
Blue Apron has been steadily improving its operational efficiency, making it a more appealing M&A target, but outside of that the company has very little going for itself.
Roku Is the IPO Everyone Wanted
If you’re starting to get depressed reading about all of the 2017 IPO investing fails, don’t worry because streaming platform and hardware maker Roku Inc. (NASDAQ:ROKU)
Roku bucked that trend treating those who got in on the ground floor to gains upwards of 60%. The company priced its shares at $14 during its IPO and those who were lucky enough to buy a piece of the company at that price haven’t suffered any losses.
ROKU stock closed its first day of trading at $26.54 and despite initially dipping below $20 at the end of October, Roku has remained above $30 ever since.
This year has been a bumpy one for Roku investors because the company has been shifting its focus from creating hardware to expanding its streaming platform.
Investors were initially skeptical about the firm’s potential as a streaming platform, but Roku’s most recent earnings report showed that Roku brought in $75.1 million through advertising sales and fees associated with the streaming platform compared to the $61.5 million that hardware sales generated- confirming that ROKU is officially more of a streaming service than a hardware retailer.
The firm’s future ad sales look promising as well. Roku is highly selective about the number of ads its viewers see, which has made them more effective and caused advertisers to see higher conversion rates than they have with traditional TV commercials.
Of course, the firm is still facing some headwinds, but it’s worth noting that when it came to IPO investing last year, at least investors had a right to get excited about Roku.
As of this writing Laura Hoy was long AMZN and FB.