3 Best Technology Stocks from New Tech IPOs 2017
3 Great Tech IPOs Beyond Snap Inc
Year 2016 was annus horribilis for tech IPOs. We were left with a dearth of good technology stocks to invest in. But this year is already turning out to be a bonanza for fresh tech IPOs. Three of these new tech IPOs are worth watching for technology investors.
To give you an idea, say you had invested a modest $1,000 in each of these three stocks. Your $3,000 investment would have roughly turned into $4,000 in just 40 days! That’s about 33% in returns while the market index went up by less than two percent in the same period. Exciting, right?
Not just you, but many tech investors find initial public offerings (IPOs) to be thrilling investments. A friend who closely follows tech IPOs and likes to invest in them defines it as a dopamine-pumping activity that he equates with paragliding over the Canadian Rockies. I may not quantify my excitement on the same level, but indeed there’s some charm in it.
The only problem, however, is that not everyone is a daredevil like my friend. I won’t sugarcoat it, but IPOs are risky investments.
So, before I reveal these newly IPOed tech stocks, there are a few things you need to know. I’m assuming you are already familiar with what an IPO is, but here’s a quick refresher.
You see, in an initial public offering, the stock of the company is sold for the first time to the general public on a stock exchange. Underwriters sell the stock on behalf of the company and in turn take their cut on it. These underwriters are actually the big investment banks on Wall Street, and they are the ones who set the price of the stock.
In other words, the IPO price is not determined by free market forces of demand and supply. So you can imagine that IPOs are overpriced; if they were cheap, why would Wall Street bankers be selling them?
This is why most IPO stocks turn out to be duds within days of making their debut. But that’s the worst case scenario. Obviously, there’s a flip side of the coin.
The best case scenario is that one or more of these IPOs turn out to be the next Facebook Inc (NASDAQ:FB) or LinkedIn Corp (NYSE:LNKD)—they either land on solid footing and take off like the former, or they get acquired like the latter. Under both cases, however, the IPOed company must offer value, either to prospective shareholders or potential acquirers.
My point is that we cannot strike off all IPOs as flops. Some can actually surprise you.
The Best New Tech IPOs 2017
Now, this year kicked off with the most anticipated tech IPO of 2017—Snap Inc (NYSE:SNAP). Forget unicorns, Snap was the latest “decacorn” of the tech world to hit the market. Decacorns, by the way, are companies with valuations in excess of $10.0 billion. And yet, SNAP stock went through the same giddying peaks and troughs like any other IPO. That said, the stock seems to have entered a more stable trading territory now.
The lesson to take away from Snap’s example is that the best time to invest in IPOs is never the first day of trading. The first few days are always volatile. The more valuable windows of opportunity open days, sometimes weeks, after the stock goes public. This is why I’m not pitching future IPOs here, even though I know some more hot tech IPOs are anticipated this year, including Spotify; Dropox, Inc.; BuzzFeed; Uber Technologies, Inc.; and Airbnb.
Instead, I’m looking at three of the best technology stocks from the bunch of fresh tech IPOs of 2017 that have already gone public, have settled in, and may now be trading in a less volatile range.
So here we go!
Cloudera (CLDR) Stock
This company was probably the second-most sought-after IPO of the year after Snap. There’s a reason why. Cloudera Inc (NYSE:CLDR) had the blessings of a technology heavyweight supporting it in the background.
You see, “Big Data” is a hot buzzword in the tech world today. Companies, no matter the nature of their business, generate gargantuan loads of data every day. Just think about it: is it humanly possible to analyze terabytes or petabytes of data in a matter of minutes?
Absolutely not! This is why we need software that can carry out big data analysis, deliver meaningful insights, and help us make the right decisions.
This is where Cloudera comes in. The company sells data management and data analytics software, and lists many other tech titans as its clients, including Samsung, Cisco Systems, Inc. (NASDAQ:CSCO); Mastercard Inc (NYSE:MA); Siemens; and SanDisk Corporation (NASDAQ:SNDK).
But here’s the real kicker! Remember the heavyweight I mentioned? The popular chipmaker, Intel Corporation (NASDAQ:INTC), is the biggest stakeholder in the company, owning somewhere near 22% of the company. Intel invested more than $740.0 million in Cloudera about three years ago, after having seen value in its business.
In the past one year, this small company made $261.0 million in revenue, which was a jump of 57% from the same period a year ago. While it’s not yet profitable, which is common with new IPOs, Cloudera may have a chance of getting there.
Why do I say this? Because although Cloudera is a small frog in a big pond, the pond is expanding. Mind you, the Big Data industry is estimated to cross $203.0 billion in sales by 2020 and Cloudera could easily grab more market share.
As for CLDR stock, it’s up a solid 39% in just 10 days of trading and its uptrend is vividly obvious on the stock price chart below.
Chart courtesy of StockCharts.com
All in all, Cloudera stock could be one of the best tech IPOs 2017.
| Return Since IPO | 42.67% |
| IPO Date | April 27, 2017 |
| Stock Symbol | NYSE:CLDR |
| Business Focus | Big Data Analytics Software |
| Latest One-Year Revenue Growth | 57% to $261.0 million |
Okta (OKTA) Stock
If there’s anything the recent “WannaCry” ransomware attack has taught us, it is that cybersecurity must be the paramount concern for any business. In case you haven’t heard of it already, there was a worldwide cyberattack last week. The virus locked down the computers that fell prey to it and held them hostage until a ransom was paid. The incident threw a scare into businesses around the world.
You see, even if the companies had set up a strong firewall on computers on their local network, there was still a likelihood of a security breach. That’s because so many companies have their employees accessing their smartphones and other devices while connected to the corporate network. Also, some companies have employees working remotely who connect to company networks through the cloud.
Of course, this threat is not limited to employees alone. Some businesses are threatened on the same lines by their customers who use their company network.
But how is this relevant to the next technology stock on the list? Well, Okta Inc (NYSE:OKTA) is a company that offers a solution to this problem.
Okta offers businesses a cloud-based solution with which they can let their employees, customers, and partners securely connect with technology in any form, from any device anywhere in the world.
Okta calls the service “Identity Cloud,” such that it creates an identity for users connected to a business’s cloud network. Once identified, these users can be secured against cyberattacks within the network. This way, unidentified malicious actors can be kept out.
Big names using Okta today include Adobe Systems Incorporated (NASDAQ:ADBE), 20th Century Fox, MGM Resorts International (NYSE:MGM), LinkedIn, and GitHub, to name a few. Revenue in the latest year of 2016 hit $85.9 million, a 109% increase from 2015.
But Okta piques my interest for another striking reason. The same venture capital firm provided Okta with seed capital that had funded Facebook. Yes, Andreessen-Horowitz invested in Okta through its infancy, thus helping it achieve unicorn status. Naturally, Andreessen-Horowitz saw value in Okta’s business.
According to Okta’s latest S-1 filing, the company sees its target market to be potentially worth over $18.0 billion. Okta’s current revenue is nowhere close to even $1.0 billion yet, so the company may have chance to tap into this niche and grow. (Source: “Okta, Inc.” United States Securities and Exchange Commission, March 13, 2017.)
OKTA stock is up 36% in a little over a month, and after having gone over the classic post-IPO speed bumps, the stock may now have entered a stable territory.
Chart courtesy of StockCharts.com
Now may be a great time to start tracking this fresh tech IPO 2017.
| Return Since IPO | 26.82% |
| IPO Date | April 07, 2017 |
| Stock Symbol | NYSE:OKTA |
| Business Focus | Cloud Identity/Security |
| Latest One-Year Revenue Growth | 109% to $85.9 million |
Yext (YEXT) Stock
I’d define Yext Inc (NYSE:YEXT) as a dark horse (or unicorn, if you may) on this list. Its pre-IPO valuation hovered around $500.0 million. But as it turns out, Yext went public as a tech unicorn, crossing the $1.0 billion mark on the first day of trading.
Its name, by the way, is not a meaningless mishmash of letters. It has more meaning than you think. “Yext” is supposedly a fusion of “Yellow” and “Next” to represent its utility as the “Next-Generation Yellow Pages.” If that doesn’t click, let me explain what this tech company actually does.
As the tagline goes, the company “puts businesses on the map,” but there’s more to it than just that. Yext provides a digital cloud-based portal to other companies from where they can manage their digital presence across all platforms with one click.
With Yext, businesses can add and change their location-based data including store locations, addresses, and timings with the ease of one click across all major apps: “Google Maps,” “Bing,” “Facebook,” “Instagram,” “Yelp!,” and hundreds of others.
Yelp Inc (NYSE:YELP) also provides them with tools to create more visibility and bring in higher traffic to their businesses. Features like “Listings” and “Reviews” help businesses manage their digital presence across various social media platforms through the single platform of Yext.
Yext counts McDonald’s, Best Buy, Marriott, Citi, and Rite Aid amongst hundreds of its customers. For large- and medium-sized businesses, Yext is a tool of great utility.
If management does it right, Yext could become a popular social media company solely for businesses.
| Return Since IPO | 42.67% |
| IPO Date | April 13, 2017 |
| Stock Symbol | NYSE:YEXT |
| Business Focus | Big Data Analytics Software |
| Latest One-Year Revenue Growth | 49.5% to $89.7 million |
YEXT stock seems to be heading for a post-IPO correction. Once it finds stable ground, investor’s might want to add it to their portfolio. So keep an eye out for this technology stock through 2017.
Chart courtesy of StockCharts.com
Bottom Line on Investing in New Tech IPOs 2017
All told, investors must exercise extra caution with new tech IPOs.
That’s because virtually all newly IPOed tech companies are not making any money at the time of going public. They are in an early growth phase and looking for funding to expand. That’s exactly why they turn to the primary markets to sell their stock and raise some funds.
The money they receive from the IPO gets funneled back into the business. And it can take months, but mostly years, to turn to profitability. So investors must look for answers to three questions before investing in new tech IPOs 2017.
- Is the core business of the company sustainable?
- Is the industry in which the company operates growing?
- How long will it likely take for the company to turn profitable?
In a nutshell though, the three technology stocks I’ve pitched are some of the best new tech IPOs and they definitely deserve to go on your watch list in 2017.
