A wave of IPOs might be coming our way…
We could very well see a flood of big tech startups finally announcing their initial public offerings (IPOs) in 2018.
And what started it all? Dropbox’s IPO last Friday played a huge role in this recent surge of IPOs.
And a highly valued company like Dropbox couldn’t have asked for a better market debut.
Major U.S. indexes fell more than 2.5% on the day that Dropbox IPO’d. But that didn’t stop the company from having a successful first day of trading.
Initially, Dropbox was aiming for a $16–$18 IPO price, but the price was raised to $21 the night before its big market debut.
The company and its underwriters knew that a $21 price would be in line with the company’s valuation and that potential investors would agree.
And they were right.
Dropbox shares opened for trading at $29. They closed the day out at $28.48. This was below what it opened at but still wasn’t too bad when you consider that it had an IPO price of $21.
Dropbox pricing above its IPO range is a good sign of what could be on the horizon for the IPO market — more specifically, for tech startups…
The Window Has Been Opened
Now that the IPO window has opened up, other startups are seeing their opportunities. One, in particular, is the Bellevue, Washington-based company Smartsheet.
Smartsheet provides customers with its enterprise software, which is used for communication and collaboration.
It’s basically another cloud-based platform. And it’s used in a lot of different ways. But its biggest use is in the workplace.
Smartsheet gives teams and organizations an efficient and easy way to do their jobs and to meet business goals.
It’s 3.6 million users and its products are used at 90% of Fortune 100 companies. Cisco and Starbucks are among some of the Fortune 100 companies that use Smartsheet’s platform.
And the company’s revenue keeps growing. It brought in $111.3 million for its fiscal 2018 year — a 66% increase from its fiscal 2017 year, which brought in $67 million.
But like most companies, it’s had its losses. And for Smartsheet, these losses are unfortunately growing. In 2018, its losses totaled $49.1 million.
In the company’s prospectus, it warned investors: “We have a history of cumulative losses and we cannot assure you that we will achieve profitability in the foreseeable future.”
This type of warning to investors is common in a company’s IPO prospectus. Everything has to be laid out and made clear to potential investors, so they know exactly what they’re getting into should they choose to buy shares.
Smartsheet’s IPO will be backed by Morgan Stanley and JPMorgan.
The floodgates have opened for tech IPOs…
After less than a week of trading, Dropbox is still rallying. And this is a great sign for the IPO market.
Lise Buyer, an IPO consultant and partner at Class V Group, had the following to say about the IPO market:
The number of tech companies, across the spectrum, now meeting with (if not engaging) bankers and working with the auditors to be “IPO ready” is very definitely on the upswing.
[The] window is already wide open, and there is enormous pent-up demand at institutions for new companies that are priced reasonably.
We’ve seen recent filings for other tech companies like Zuora and Pivotal Software. Then there’s Spotify’s direct listing, which is happening next week on April 3rd.
Yes, the IPO market has been slow over the past few years. But this could be a good year with, hopefully, fewer disappointments like last year’s Snap and Blue Apron IPOs.
What we’re seeing with this year’s IPOs are companies that have strong fundamentals. And these companies are also in industries that are continuing to grow and prove their necessity.
Not to mention, spring is generally the time when companies go public. This is because there’s still momentum in the first half of the year before the summer’s market slowdown.
So, as long as the companies that have recently filed IPOs are still seeing success, we should continue seeing private companies following in their footsteps.
Until next time,
Jennifer Clark
Pro Trader Today