To date, 2015 has been a slower year for initial public offerings (IPOs), compared to the record-setting 2014. Despite the mediocre IPO market, there are several tech IPOs with innovative business models. But do their share prices live up to expectations?
Tech IPOs in First Quarter 2015
The IPO market, along with tech IPOs, likely topped out in 2014. For example, in the first quarter of 2015, firms going public only raised $5.5 billion from the markets, while IPOs in the first quarter of 2014 totaled $10.4 billion—or 92% more than the 2015 total.
Despite the decline, several brand-name tech businesses managed to squeeze out a listing in 2015.
Top tech IPOs to date include Inovalon Holdings, Inc. (NASDAQ/INOV), GoDaddy Inc. (NYSE/GDDY), Box, Inc. (NYSE/BOX), and the recently public ETSY Inc (NASDAQ/ETSY). The top tech deals secured roughly one-fifth of the $5.5 billion. That’s not much, as the majority of investor capital flowed towards the healthcare industry, specifically biotech. (Source: Renaissance Capital, last accessed May 11, 2015.)
Biggest Tech IPOs of 2015
Some of the names behind the numbers:
Inovalon is a data-driven company. The tech startup provides analytics for the healthcare industry—from hospital admission and emergency room data aggregation, to predictive analytics for health care providers. Inovalon raised roughly $600 million and at present is valued at $3.6 billion.
Box, Inc., another noteworthy tech IPO of 2014, is a cloud-based and data-driven business. The company reportedly helps over 34 million users and 45,000 businesses store, secure, and share data. Box raised $175 million and now trades at a market cap of $2.0 billion.
However, the biggest tech IPO in 2015 was that of GoDaddy, the domain registration and web-hosting service provider, which raised $440 million.
The other big tech IPO, public shortly after first-quarter end, was Etsy.com—the online handmade goods marketplace. Etsy managed to lure about $270 million from investors.
Tech IPOs continue to capture the imagination of institutional and retail investors alike. But, there is a troubling underlying theme, evidenced by the most recent tech IPO of 2015.
Recent Tech IPOs and Takeaways
Another tech company that recently went public on April 24, 2015, is Apigee Corp (NASDAQ/ APIC)—an enterprise software-as-a-service provider.
Apigee allows enterprises to develop application programming interfaces (APIs)—a digital link between core IT systems and external applications that users engage with. For example, Amazon.com Inc. (NASDAQ/AMZN) has an API that allows online storefront developers to easily access product information, thus integrating the two standalone online services.
According to Apigee’s Securities and Exchange Commission filings, the tech startup was looking to raise $86.0 million. It managed to hit that mark in selling 5.1 million shares priced at $17.00. Since that date, investor sentiment has reversed. Apigee’s stock price quickly slid from the opening price of $20.00 to $13.90 as of May 8, 2015. (Source: SEC Form S-1, March 20, 2015.)
Moreover, like much of the tech public offering of 2015, Apigee went public on solid revenue growth results, but horrible profit numbers. For the year ended July 31, 2014, Apigee lost $1.15 for every $1.00 in revenue. The poor profitability profile resulted in deteriorating earnings-per-share results. Apigee earned negative $0.56 per share in 2012, negative $1.39 in 2013, and lost $2.34 in 2014. (Source: SEC Form S-1, March 20, 2015.)
Overall, IPOs in 2015 experienced a 13% return in the first day of trading, above the decade average of 11%. But, despite the solid first-day results, tech IPOs of 2015 experienced mixed results, post-inauguration frenzy. For example, GoDaddy is down seven percent from its opening price; Etsy has lost 42% of its value; Box is down 30%; and Inovalon is off 30% from its highs.
Looking ahead, for the remainder of 2015, investors should be cautious of tech IPOs with no profits. A few of the names could be long-term successes, but near-term results, specifically beyond the first day of trading, will be challenged by lack of profits. Given that the NASDAQ index has rallied nearly 320% since its 2009 lows, investors are likely growing wary of shaky business models.
Investor sentiment may be turning, but Wall Street continues to capitalize on an accommodative market environment.
Tech IPOs in May 2015
A notable upcoming tech IPO is Shopify Inc., looking to list under the ticker symbol SHOP on the New York Stock Exchange. The expected IPO date for Shopify, which I’ve written about in Profit Confidential, is May 21, 2015.
According to the latest numbers, Shopify is looking to raise $124 million by selling 7.7 million shares with an expected share price of between $12.00 and $14.00.
The e-commerce software provider has lost money since 2012, despite remarkable revenue growth. For example, revenues grew at 109% in 2014, but retained earnings. Wealth of shareholders stood at a negative $34.0 million. (Source: SEC Form F-1, April 14, 2015.)
Shopify fits perfectly into the theme of solid pre-IPO revenue growth and horrendous earnings results. It may also follow the other theme of disappointing stock price performance.
So, while the IPO market is likely to improve for the remainder of 2015, the financial strength of tech businesses going public will not. Picking long-term winners from the onset isn’t for the faint of heart, as 20% plus price declines are within the norm, as evidenced by many of the tech IPOs in 2015.