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All Contents © 2019The Kiplinger Washington Editors
By Tom Taulli
| December 27, 2017
It's been a mixed bag with initial public offerings this year. That, however, is to be expected. IPOs tend to be earlier stage companies, which means the risks are often significant.
So yes, there were notable implosions. Just look at Blue Apron (APRN), whose shares have plunged 62%. Although, perhaps the biggest surprise was Snap (SNAP).
While the IPO got off to a good start, it would not last long. Facebook's (FB) Instagram Stories was just too powerful. As a result, SNAP's user growth decelerated and the stock price would go on to fall by 40%.
But of course, there were some big-time gainers. Note that 10 offerings that posted 100%-plus gains, such as Roku (ROKU) and Canada Goose (GOOS).
OK then, so what can we expect for the companies going public in 2018? What are some of the prospects? Well, let's take a look:
Prices and data are from the original InvestorPlace story published on Dec. 13. Click on ticker-symbol links in each slide for current prices and more.
It seems that for the past few years Dropbox has been on the list of companies to come public. But as for 2018, it does look like the timing will be right. According to a report in Bloomberg, Dropbox has selected Goldman Sachs Group (GS) as an advisor.
In the meantime, Dropbox has been putting in place senior managers who understand the public markets. The company also has built out another revenue stream, which is focused on enterprises.
If the company does join the ranks of 2018 IPOs, it will probably be one of the year's biggest. Keep in mind that revenues are on track to exceed $1 billion.
Zuora does not get much attention. But the company has a CEO/co-founder who is likely to get respect on Wall Street: Tien Tzuo. Before Zuora, he was one of the first employees at Salesforce.com (CRM), where he built the billing system.
While doing this, he got an education in the complexities of managing subscriptions.
No doubt, this became critical for Zuora. Yes, it is a leader in subscription management systems. And for the past year, the company has been on track to hit the $100 million on the top line.
As should be no surprise, Zuora has a group of top-flight investors, including Salesforce.com's CEO, Marc Benioff.
Dries Buytaert is the mastermind behind Drupal, which is a popular open source content management system. But he did not stop with this. He then leveraged the technology of Drupal to create Acquia, which helps companies develop sophisticated web and mobile app platforms.
Among the 3,500-plus customers include biggies like Intuit (INTU) and Warner Music Group.
To get ready for an IPO, the company has hired a high-profile CEO, Michael Sullivan. He is both a successful entrepreneur but has also run large operations, such as for Hewlett Packard Enterprise Co (HPE).
Since 2007, Acquia has raised $173.5 million in venture capital from firms like Centerview Capital and New Enterprise Associates.
Apttus got its start in a laundry room (yes, startup life can be a bit wacky!). The founders also did not get venture capital initially. Instead, they built their software—which helped better manage the price-to-quote process—on top of the Salesforce.com platform.
This not only meant the product got to market quicker but there was also the advantage of capitalizing on an existing distribution channel. The result was instant growth and large accounts.
True, Apttus did eventually seek out venture capital but on much more favorable terms. In all, the company has raised a whopping $329 million.
As for an IPO, the company has retained GS as an advisor, according to a report in Bloomberg.
Back in 2016, Silver Lake and the Singaporean sovereign wealth fund took Ancestry.com private in a $2.6 billion transaction. According to the press release, Silver Lake CEO Stephen Evans noted: "Ancestry's rapidly expanding consumer DNA testing service has powerful network effects and widespread consumer appeal."
Well, it now looks like the company will return to the public markets once again.
Granted, the market has tough competitors, such as 23andMe. Yet Ancestry.com has done a pretty good job at keeping up the momentum. For this year, the revenues are expected to jump by 30% to $1 billion.
Even though cybersecurity remains a top priority for companies, the IPOs have generally been disappointing. Part of the problem is that there are many solutions in the market, which makes it tough to get the attention of customers.
But this does not seem to be a concern for Zscaler. This cybersecurity operator has recently made a confidential filing of its IPO papers. It also appears that Morgan Stanley (MS) is the lead underwriter on the deal.
Keep in mind that Zscaler has a complete cloud-based system (called Security-as-a-Service), which is embedded across 100 datacenters. This allows for high response rates and better updates to handle new threats.
BarkBox is a subscription service for your dogs. Every month, a customer will get a box of all-natural treats and cute toys.
As the company mentions on its website: "At BARK, we know that dogs aren't pets; they're family. Our people, crazy dog people, believe that their dogs deserve the best. The best treats, the best toys, the best seat on the couch. Together, we're driven to be the people our dogs think we are."
All in all, the business model has proven to be spot-on. Since 2012, BarkBox has shipped more than 50 million times. And as of this year, the company expects to post $150 million in revenues and to even post a profit. There are currently 500,000 subscribers.
Given all this, the valuation of BarkBox should be at premium levels. It also helps that PetSmart shelled out $3 billion of Chewy.com, which is certainly a validator of the market.
Back in September, ride-sharing operator Lyft raised $1 billion. In fact, the lead investor was an affiliate of Alphabet (GOOGL), which has been aggressively investing in the self-driving market. In all, Lyft has raised $4.6 billion and sports a valuation of $10 billion.
Of course, Uber has been embroiled in drama, with the departure of its co-founder and CEO, Travis Kalanick. And this has certainly helped provide momentum for Lyft.
The company expects that its market share in the U.S. will spike by 61% this year—for a total of a third of the opportunity.
Social networking site Pinterest has been making the kinds of moves to prepare for an IPO. The company recently hired a head of corporate and business development, Gary Johnson, who was formerly with Facebook. There were also other key hires like Todd Morgenfeld, who has the role of CFO.
In terms of the fundamentals, Pinterest looks like a good bet. In September, the company announced that the MAUs (Monthly Active Users) hit 200 million, up from 150 million last year. More than half of the users are from outside the U.S.
The Pinterest platform includes 100 billion pins and over 2 billion boards. This is definitely very attractive for brands, which want more engaging experiences for their customers.
Pinterest has also continued to push innovation, as seen with Lens. With this, a user can use a smartphone to point to a product and then tap to get related styles and new ideas. This should not only increase the engagement but also the monetization—which will definitely gin up excitement with investors.
Among the 2018 IPOs, Spotify could be the most interesting. You see, the company plans to take an unusual approach to its offering. The plan is to bypass traditional Wall Street underwriters, which will mean saving a bundle on fees.
Spotify does have the advantage of 60 million customers. In other words, they will likely to be a nice source of potential demand for the IPO. But many institutions will also likely want to participate. In the end, the strategy could widen the shareholder base.
Spotify also has released its financials—that is, for 2016. During this period, revenues increased by 52% to $3.27 billion but the losses more than doubled to $601.4 million.
This article is from Tom Taulli of InvestorPlace. As of this writing, Taulli did not personally hold a position in any of the aforementioned securities.
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