Over the past two weeks, the IPO calendar has come back to life with some great debut setups that have offered killer win opportunities. Things keep rolling along in IPO land this week, with a slate of at least 7 IPOs coming up (technically, two are Direct Listings) . But are any of them worth playing? We take a look in this week’s IPO preview.
Amplitude (AMPL) – September 28, 2021 | 35M Shares
Amplitude provides a SaaS digital marketing optimization and analytics platform for major brands like Ford, Wallmart, Anheuser Busch, Square, and more; with over 1,200 total clients – 311 of whom pay in excess of $100k per year for their services. With revenue up 57% in the 6 months ending June 30, 2021 and Gross Profits up 54% in the 6 months ending June 30, 2021 on 69% gross margin, their growth and financials are impressive. They are moving towards being Net Income and Cash Flow positive, but are not quite there yet. Their customer net retention rate is a healthy 110%, against a strong field of competitors, including Google’s Analytics platform. This is clearly a solid company, so the real question here is about how the fact that they are opting for a direct listing will affect the IPO price movement. Based on the reference price of $35.41 and the stated valuation of $4.6B determined at that price, there are roughly 130M outstanding shares: this is consistent with their intention to sell 35.4M shares, and reported outstanding shares prior to this of 102M shares. Of course, not all existing shareholders will sell, but some may cash out if the price reaches any significant premium.
I’m really on the fence on this one: on one hand, a direct listing generally indicates that a company is in a strong financial position, as they are choosing not to raise cash through a traditional IPO offering. On the other hand, direct listings present an unknown in terms of how many shares will get sold by existing shareholders. Some have done quite well: PLTR offered a quick 10% run up off the debut, RBLX performed strongly out of the gate and moved up further from there, and even COIN offered an initial spike before crashing.
I’ll probably watch this one from the sidelines, and if I do play it, I’ll take out profits off any initial move to the upside. Almost wish this one was just doing a traditional IPO.
Warby Parker (WRBY) – September 29, 2021 | 77.7M Shares*
This is is another direct listing – a well known direct-to-consumer eyewear company with high brand name recognition and strong revenue growth and gross profits in the past 6 months ending June 30, 2021 ( +53% and +57% respectively). Gross margins of 60% are an appealing statistic, and they even achieved cash flow positive for the 12 months ending June 30, 2021, though barely at just $2.1M. The issue for me on this one is that they are selling an additional 77.7M shares on top of the existing 111M shares outstanding. That kind of float doesn’t give me much confidence that demand will outpace supply to the tune of a substantial upside movement. Again, direct listings are hard to read, and it takes a ton of exposure to boost these into a meaningful win opportunity. I feel more comfortable watching these from the sidelines, and will take notes for future debuts that forego the traditional IPO process.
Allvue Systems Holdings (ALVU) – September 29, 2021 | 15.3M Shares
This company provides a SaaS investment management software platform for institutional investors. The main issue I have with this company is that they’re growth metrics were very strong in 2020: revenue +57% and gross profits 40%, but have regressed significantly in the past 6 months ending June 30, 2021, with revenue up just 14% compared to H1 2020 and gross profits up just 9% over the same period. While cash flow is positive for the past 6 months, and the float is just 15.3M shares, I’m not sure this is going to get the kind of hype, exposure, or demand that would make this an obvious winning trade. As the past couple weeks have shown, there are non-obvious debuts that end up being winners, but the clear winners make for better trades, and I don’t see this one as a clear winner: so if I miss it, I’ll live with that decision.
Olapex Holdings (OLPX) – September 30, 2021 | 67M Shares
To be honest, I know almost nothing about hair care products, but this company is clearly a beast in the making, with the trifecta of financial strength indicators of operating profit, net income positive, and free cash flow positive. The growth metrics are impressive as well, with revenue up 171% in the 6 months ending June 30, 2021, and Gross Profits up 404% over the same period. The only problem is that the float is 67M shares, and reportedly, the primary purpose of the IPO is to provide liquidity to existing shareholders. So as much as I like what I’m hearing about this one, I don’t see the right setup for an IPO play off the debut.
Healthcare Triangle (HCTI) – September 30, 2021 | 8M Shares
A could and data management software platform for healthcare and life sciences organizations that focuses on research and compliance, this company has ‘nice’ growth numbers, but fails on all fronts of financial stability. Specifically, for the 6 months ending June 30, 2021, revenue is up 20% and Gross Profits are up 32%: good, but not amazing, and offset by operating losses, negative net income, and negative cash flow. The only redeeming factor here is that this is one of those “$5 Specials” with a low float of just 8M shares, that have somehow managed to offer at least one spike after their debut: though often this only manifests after a dip off the debut. I can’t see myself buying this on the debut, but if we do get a drop off below $4, perhaps a shot at a brief recovery play would be worth a try. Not particularly excited about this one either.
First Watch Restaurant Group (FWRG) – October 1, 2021 | 9.4M Shares
Hmm… restaurants: not really something I’m gonna get too excited about, especially a breakfast/lunch establishment that was hit hard by the pandemic, and has only recently gotten its footing again. I’ve never heard of them either, so I don’t know if they’re any good or not. I’m not even going to bother with their financials, primarly because they are comparing the previous 12 months against COVID era performance, which make them look more impressive than they likely are: and in this case, the low float of just 9.4M shares could work against the trade if there is low volume and no buyers. Getting stuck in this one would be a drag. I’ll sit it out.
TDCX Inc. (TDCX) – October 1, 2021 | 18.8M Shares
By the time TDCX debuts on Friday, I’ll probably either completely bored by a string of poor debuts on which I happily passed, or feeling some serious FOMO at having missed on any winners that I didn’t catch on to… but TDCX does seem to be worth a look. This Singapore-based company provides user experience services to large international organizations, with a significant amount of revenue derived from two primary clients: Facebook and AirBnB. Revenue is up 20.9% for the 6 months ending June 30, 2021 and Operating Profit is up 22% for the same period: solid but not breathtaking numbers, and growth has slowed since 2020. But hey are cash flow positive with operating profits, and the float is just 18.8M shares. Again, not particularly excited about this one, so I may just pass on the whole week.
“When in doubt, sit it out.”
Since I first started playing IPO debuts with the Zoom (ZM) IPO in April 2019, I’ve researched, watched, and played hundreds of IPOs: with great overall success equating to life-changing financial gains. When I first started out, I was highly selective and only played the most obvious, blockbuster IPOs and was mostly rewarded for my prudence. But I also noticed that I was missing out on many of the most profitable opportunities, where factors I had not considered before came into play: low float, obscure underwriters, non-brand name companies with strong financials, buzzworthy stories… all these factors turned out to be, in many cases, more important than just being a blockbuster brand name. Some strong brand names debuted to rather mundane offerings (looking at you UBER), others that I barely knew ran up 30-40% or more.
Moreover, once I started getting the initial hang of things, the rush and excitement of bagging more money in a single trade than I’d make in months of work became addictive. And this is what I want to address here.
If you played the IPOs I recommended over the past couple weeks, you likely made some very profitable trades. We saw some very predictable debuts that ran straight off the open, offering easy Day 1 wins with further gains posted on Day 2 runs. But as last week showed us, not every brand name debut is a pot of gold (TOST – RELY).
The temptation is very strong to keep playing IPOs for the sake of not missing out, but also simply for the rush of the debut. Beyond that, confirmation bias has a proven effect on judgement that can drive you to WANT to see opportunities that just aren’t really there. It helps to be aware of these things when analyzing any investment, and try to approach each opportunity with a clear head.
When it comes to trading stocks, often the decision of what NOT to buy is just as important as what to buy into. Clearly, I’m writing this as much for myself to hear my own words and hopefully abide by them, as I don’t really see any clear winners for the upcoming week at this point… but my mind may change.
If you want to keep up to date with my thoughts on these IPOs as the week evolves, follow me on Twitter (below), or join the live Reddit Thread where we discuss and trade IPOs live.
Good luck out there.
Note: The information contained in this newsletter is not meant as financial advice, and I am not a financial advisor. Trading equities is risky and may incur financial losses. I may or may not take positions in the equities mentioned in this newsletter in the next 72 hours. Trade your own trade, and good luck.