After weathering the storms of 2015-16, 2017 was a great year for investors looking to create value for customers. The three largest tech firms – Amazon, Alphabet, and Microsoft – saw their share prices boom after better-than-expected growth figures. This, in turn, fed greater stability and optimism into markets and stock indices, making this an apparently great year to launch an Initial Public Offering (IPO).
Q1 of 2017 was especially big, when seven tech startups launched their IPOs, raising more than $4 billion in funding.
Too big to fail?
Chief among the biggest tech IPOs was Snap Inc., which opened at a $29 billion valuation in March this year. It was a huge announcement and a great move for the company, which has been struggling to create something innovative over the last few quarters. However, it didn’t pan out well for the startup in the end, as it ultimately succumbed to a market cap of $19.53 billion as of the end of the year. Wall Street is waiting for something innovative from Snap and is hoping that it comes out with it soon.
However long the process might be, Kathleen Smith, principal at Renaissance Capital, believes that “The only reason you wouldn’t go public is if you’re concerned you wouldn’t get a public valuation to match the private valuation.”
Although Snap is currently worth more than 60 percent of the tech IPOs that filed this year, growth may be coming in from smaller startups raising less than $5 billion. The second most valuable tech IPO this year was Mulesoft, which surged more than 45 percent on its first day of trading. With a current market cap of just under $3 billion, it hasn’t shown much growth this year. Going up and down in the market, Mulesoft hasn’t been the darling that it was meant to be.
Companies such as Okta and Cloudera haven’t shown returns as expected either, and their poor growth continues to worry investors who are waiting for tech-returns. Poor growth and unexpected turns have made these companies volatile in the marketplace.
Furthermore, other companies such as Yext, Netshoes, and Elevate have all gone below their IPO valuation and have either stalled or shown no promise this past year. Investors may get impatient and pull out next year over growing worries about tech-IPO bubbles.
However, perhaps the most talked about – and disappointing – IPO this year has probably been Blue Apron. It had a massive launch and a great community supporting them all the way. However, it had to delay expansion plans and couldn’t become profitable despite many attempts. After a declining fourth quarter, investors have now become warier of APRN. Despite having a new CEO this past month, the company share price is still hovering well under 67 percent of its IPO price.
On the other hand, Carvana Co, which launched an IPO in the first half of the year, has doubled in market cap and shown great growth overall in terms of business. It’s one of the few companies that had a quiet IPO and has shown significant growth for investors since. Stitch Fix has also nearly doubled in market cap and is valued at around $2.3 billion currently. It also had a quiet entry-point and its founders are positive about the company’s outlook.
Alteryx Inc too has nearly doubled its market cap since its IPO announcement, as the demand for analytics and data services have pushed the tide of the industry in general. It’s trading at 28$ at a market cap of $1.66 billion at the time of writing.
There have been a couple of big hits and plenty of misses in 2017’s IPOs. As new trends like Initial Coin Offerings (ICOs) and industries like AI:ML and blockchain consolidate in 2018, one can expect more Silicon Valley startups to take the IPO route to capitalize on these opportunities. However, will they live up to the expectations of investors and shareholders? Time will tell.