Investors take note: After a mixed 2017 for initial public offerings (IPOs) of stock, 2018 will likely be a blockbuster year for IPOs as shares of companies ranging from Airbnb and Lyft to SurveyMonkey and WeWork are expected to debut. Several positive factors should attract investors, including a buoyant stock market, a strengthening economy and IPOs from a diverse lineup of “unicorns”—well-known private companies with proven business models and huge followings.
Such IPOs, although often volatile, provide an opportunity to buy shares of young, innovative companies with years of growth ahead of them.
Shares of Roku, which provides technology that enables services such as Netflix and Hulu to stream to TVs, more than doubled in price in the months after debuting in 2017.
But some IPOs, despite high expectations, turn out to be overpriced disappointments. Example: Snap Inc. was the biggest, sexiest IPO of 2017, raising $3.4 billion on the strength of its social-networking app, Snapchat, that has drawn comparisons to Twitter and Facebook. But the company has struggled to attract advertising dollars, and the stock cratered—it recently was down 34% from its first-day opening price.
It is enticing to try to get in on an IPO as early as possible, and sometimes that approach pays off big, but it’s also especially risky.
That’s why stock-picking expert Hilary Kramer cautions against getting caught up in the initial frenzy.
Before she invests, Kramer favors tracking newly public companies, possibly even for a few quarters, to get a feel for their performance and how they are putting their capital to use.
Here are five likely 2018 IPOs that Kramer suggests tracking and possibly investing in and three others to avoid…
This global home-rental service had been expected to go public in 2015. Back then, I warned Bottom LinePersonal readers that even though the company had a brilliant concept, it was not wise to invest unless it could overcome various challenges, including regulatory roadblocks with local governments looking to ban short-term rentals. Airbnb chose to remain a private company and has grown rapidly, both in the US and overseas.
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It currently offers more than three million listings in 65,000 cities and 191 countries. It also is launching a premium service to tap the lucrative market for luxury and business travelers.
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Although places such as New York State now have laws restricting who can rent their homes on home-sharing services, Airbnb has been able to work with many local governments to craft mutually beneficial legislation.
The company, profitable since 2016, expects to earn more than $3 billion in revenue this year and $8.5 billion by 2020.
Lyft. Ride-sharing services such as Uber and Lyft have upended the taxi industry because their services typically are cheaper and more convenient.
3 IPOs TO AVOID
The companies recruit drivers who use their own cars and allow anyone to order a ride through an app on a smartphone. Until recently, Uber, which operates in more than 80 countries, was the darling of investors and the most likely IPO candidate. But it suffered a string of scandals over the past year including sexual-harassment charges, feuds with municipalities and criminal investigations that prompted the CEO and other top executives to step down.
That has provided an opportunity for the number-two company in the industry, Lyft, which has been able to navigate the regulatory issues and the pressures of a fast-growing business more effectively.
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Lyft’s ridership surged in 2017 with gross bookings (total value of fares drivers collected) rising to $3.2 billion. Its share of the US market climbed from 16% to 25%. While Lyft currently operates only in the US and still is far smaller than Uber, it is growing at a faster rate than its rival, plans to expand into Canada and is moving aggressively to develop a fleet of self-driving cars.
This small biotechnology firm was spun off from Pfizer just last year, but it has four potential blockbuster drugs in late-stage clinical trials targeting rare diseases and conditions. They include one for post-traumatic stress disorder and another for the genetic disorder neurofibromatosis. This is the most high risk of my IPO recommendations because the company is at least a few years away from having a commercial product and generating revenue.
But I’m intrigued by the unique business model. SpringWorks explores the product pipelines of major pharmaceutical companies, looking to cheaply license the rights to promising drugs that have been overlooked or misunderstood—perhaps even by the companies developing them.
Drug companies often scrap the development of experimental drugs because they no longer fit a company’s strategic goals, are better suited for a different disease or simply have lost an internal fight for interest and resources. Example: One of the most promising drugs to fight tumors was initially a failed breast cancer treatment stuck in Pfizer’s laboratories and then licensed by SpringWorks.
This Silicon Valley cloud-based software company is the global leader in online polling and surveys that have become a necessity for large institutions and companies. Every day, three million people use the SurveyMonkey site, whether it’s to ask 50 employees where to have the next company retreat or to survey 50,000 consumers in search of the next big product. I had feared that the company might stumble after its founder, Dave Goldberg, husband of Facebook chief operating officer Sheryl Sandberg, died in 2015.
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But last year, SurveyMonkey generated more than $200 million in revenue with lucrative profit margins in the 30% to 40% range. The company’s recent success in Australia will serve as a launchpad for the untapped Asia-Pacific market.
WeWork is a global leader in providing shared work spaces for entrepreneurs, freelancers and small start-ups.
The company, which operates in 59 major US cities as well as 20 other countries, leases buildings from landlords and transforms them into modern, communal work spaces. WeWork offers incentives besides simply having a desk to use.
It handles overhead costs such as Internet access, mail and package handling, printing and cleaning, as well as hosting weekly networking events. The company currently earns about $1 billion annually in revenues. It expects to double that in 2018 as Fortune 500 companies such as Amazon, IBM and Microsoft look for more flexible office space to accommodate an increasingly mobile and spread-out workforce.
Helpful: You can see a list of upcoming IPOs for 2018 at RenaissanceCapital.com/IPO-Center/Calendar.
Keep in mind that companies that file with the SEC for IPOs are not assigned ticker symbols until shortly before they go public. So you need to research and follow the companies mentioned using their full names.
3 IPOs TO AVOID
Don’t fall for the buzz over the following three companies whose shares are expected to debut in 2018.
Upwork: Down 17.9%
There’s too much uncertainty surrounding their future growth and profitability to take a chance on investing in them…
Spotify, which provides streaming music over the Internet to more than 60 million paid subscribers in 61 countries, has an annual revenue of $3 billion.
But it is unlikely to make a profit anytime soon due to the exorbitant costs to license rights for songs as well as fierce competition from rivals such as Apple Music and Google Play.
PogoTec is a wearable-device company that makes lightweight cameras that attach to most kinds of eyeglasses and transmit images and videos wirelessly to the wearer’s smartphone.
While the technology is enticing, I’m wary because the product started selling only late last year and the stock of companies with similar niche products including GoPro (small, rigged video cameras) and Fitbit (fitness tracking devices) have floundered since their own recent IPOs, both down more than 70%.
Aramco is the national energy company of Saudi Arabia controlled by the Saudi royal family.
The IPO is expected to be the largest in history, surpassing even the IPO from Chinese e-commerce juggernaut Alibaba in 2014. Although Aramco is extremely profitable and sits on one of the largest stockpiles of oil in the world, I’m concerned about how Crown Prince Mohammed bin Salman will balance national interests with his duty to the new shareholders, who will own just 5% of the company.
The royal family has made it clear that they intend to use the IPO proceeds not to grow the core business but to fund the expansion and diversification of the Saudi economy.