We are now at the final stretch for the IPO market. While there has been lots of volatility — which is natural — the overall results have been positive. For the year so far, the Renaissance IPO ETF (NYSEARCA:IPO), which tracks 39 recent offerings, has posted a gain of 28%.
It also looks like the momentum will continue. Last week, seven companies were able to raise roughly $1.2 billion and the first-day average return was 16%.
But of course, there were duds too. For example, Secoo Holding Ltd – ADR (NASDAQ:SECO) plunged by 23%. It was the worst first-day performance for a Chinese-based company in about seven years.
With that as a backdrop, I’d like to discuss some of the best IPOs so far in 2017 as well as some of the worst. The above IPOs standout, but here are some other IPO stories worth looking into:
Worst IPOs in 2017: Snap Inc (SNAP)
When Snap Inc (NYSE:SNAP) went public, it looked like it would turn out to be one of the year’s best IPOs. But the good times would not last long. Consider that the shares are off over 50% since hitting a 52-week high in March.
Even though SNAP has a valuable user base, which is focused on those generally under 30, the company has not been able to fend off Facebook Inc (NASDAQ:FB), which has leveraged its Instagram platform to knock-off Snap features.
Overall, the strategy has worked like a charm. During the past year, Instagram Stories has added 250 million Daily Active Users (DAUs), compared to the total of 173 million for Snap. Snap has also seen a steep drop in the growth ramp, which was only up 4% for the latest quarter.
Unfortunately, the company has not presented a clear-cut response to the FB threat. In other words, the worst may not be over with SNAP stock and it is far from one of the best IPOs this year despite the initial hype.
Worst IPOs in 2017: Blue Apron (APRN)
Not much has gone right with the Blue Apron Holdings Inc (NYSE:APRN) IPO. It certainly did not help that — during the roadshow — Amazon.com, Inc. (NASDAQ:AMZN) agreed to purchase Whole Foods as well as make moves into the meal-kit service business.
But there is more to the story than this. First of all, APRN continues to lose substantial amounts of money as the customer acquisition costs remain heavy and there are persistent problems with churn. Then again, this should not be surprising since a meal-kit is not necessarily a must-have.
While the company has been pulling back on its expenditures, this is also hampering the growth path. In the latest quarter, revenues increased by only 18%, compared to the 42% spike in the prior quarter. The customer base also declined by 9% to 943,000.
In fact, here’s what InvestorPlace’s Luke Lango had to say about the situation: “That isn’t a good sign if the company can’t cut marketing expenses without compromising topline growth, especially considering who Blue Apron is competing against. Amazon doesn’t need to spend on marketing to acquire customers. They already have 85 million-plus Prime members.”
Worst IPOs in 2017: Tintri Inc (TNTR)
Tintri Inc (NASDAQ:TNTR) has the distinction of being this year’s worst IPO, with a loss of 58%. This is despite the fact the company is in a hot sector — cloud computing. In fact, TNTR has a roster of over 1,300 customers, which includes seven of the top 15 Fortune 100 companies.
So why the horrible performance?
A big part has been bad timing. TNTR came public in late June when the tech market was under lots of pressure. Keep in mind that the company had to delay its IPO by a day, which certainly did not inspire confidence. TNTR was only able to price its deal at $7, which was at a steep discount to the proposed $10.50 to $12.50 price range. There was also a reduction in the number of shares offered from 8.7 million to 8.5 million.
Another issue for TNTR is that some of the recent cloud IPOs have had trouble, especially those focused on core infrastructure.
Furthermore, when TNTR reported its Q2 results, the revenues missed expectations. Revenues grew at 27% to $34.9 million, compared to 33% during the prior quarter.
Best IPOs in 2017: Veritone Inc (VERI)
Often the best IPOs are those that are not well known. So yes, we have seen this again for 2017. Just look at Veritone Inc (NASDAQ:VERI). For the year so far, VERI tops the best IPOs, with a return of 258%.
It has all the right buzzwords when you read through the prospects: artificial intelligence, cognitive computing, software-as-a-service and so on.
But it is important to consider that the company is tiny. Last year, revenues came to a mere $8.9 million and the net loss was a hefty $26.9 million.
VERI also issued a relatively small amount of shares in its IPO: 2.5 million. In other words, it does not take much buying power to spike the shares.
Best IPOs in 2017: Social Capital Hedosophia (IPOA.U)
One of the red hot areas of the IPO market this year has been the special purpose acquisition companies (SPAC) offering. Essentially, this allows a shell company to raise money in the public markets — and then management will use it to make acquisitions.
Perhaps the most notable deal is Social Capital Hedosophia Holdings Corp (NYSE:IPOA.U), which is a partnership of two Silicon Valley Venture firms. Actually, the managers include tech veterans like Chamath Palihapitiya, who is one of the original employees at Facebook and headed the instant messaging division of AOL; and Ian Osborne, who invested in companies like Alibaba Group Holding Ltd (NYSE:BABA), Airbnb, Facebook, Spotify and Twitter Inc (NYSE:TWTR).
So why use the SPAC structure? The mission for Social Capital Hedosophia is to provide a smoother process for private companies to get liquidity, without having to deal with the costs and distractions of the IPO process.
Although, according to Palihapitiya, an acquisition candidate has not been selected, he has noted that 15 brand-name unicorns have already reached out to explore a deal.
Best IPOs in 2017: The ICO???
This year, we have seen the emergence of a newfangled structure for a public offering: the Initial Coin Offering or ICO. This involves a company that raises capital by selling a digital currency at a discount. Thus, if the value of the currency rises, then the investor will take a profit.
This is actually a complicated process. And many of the companies that have leveraged ICOs have some connection to digital currencies, such as being providers of blockchain technologies.
While it is not clear what the total value of the offerings are for 2017, the buzz is that it is well over $1 billion. And some well-known companies are thinking of doing a deal. For example, messaging app Kik is looking to raise $125 million with an ICO.
Yet the future of the ICO structure is far from secure. Already China has cracked down on this type of financing and it looks like the Securities and Exchange Commission is investigating.
Best IPOs in 2017: Biotechs
It’s been a bit of surprise this year: The best IPOs have been biotech operators. Of the 22 companies that have come public this year, the average return is nearly 40%.
Here are some examples:
|Akcea Therapeutics, Inc. (NASDAQ:AKCA)||233%|
|Urogen Pharma Ltd (NASDAQ:URGN)||135%|
|AnaptysBio Inc (NASDAQ:ANAB)||127%|
|Biohaven Pharmaceutical Holding Co Ltd (NYSE:BHVN)||117%|
There are several drivers for the success. After all, biotech is often a good place to find growth opportunities. But another key factor is Gilead Sciences, Inc.’s (NASDAQ:GILD) $11.9 billion acquisition of Kite Pharma Inc (NASDAQ:KITE). No doubt, the deal is a sign that large pharma companies see the biotech industry as ripe for consolidation opportunities.
But this is not to imply the biotech IPOs have not been without their wrenching volatility. Of course, there have been various awful deals, as seen with the steep drops in companies like Obseva SA (NASDAQ:OBSV) and Ovid Therapeutics Inc (NASDAQ:OVID).
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.