Close to a dozen “tech unicorns” are set to go public this year, creating some of the most explosive new profit opportunity for regular investors we’ve seen since the late 1990s.
Back then, if you had invested in Amazon Inc. (AMZN) before it went public, you would have made 70,000x your money. That’s enough to turn a tiny $100 stake into $7 million.
And this run could be even bigger…
After all, we’re about to see some of Silicon Valley’s greatest billion-dollar ventures go public in rapid fire, all over the next few months. Names like Uber, Pinterest, Slack, Airbnb, Robinhood, Postmates, WeWork, and Palantir.
Here’s our expert rundown on the best IPOs to invest in, which ones to avoid, and how to get in before they go public.
Date of IPO: May 2019
Verdict: Invest Indirectly
Uber Technologies Inc. is the dominant force in the massive ride-hailing industry, and Wall Street is seriously amped up for its public debut (slated to happen by the end of April). With a valuation expected to be between $100 billion and $120 billion, Uber is certainly the biggest IPO of the year. But is it worth your investment dollars?
Frankly, there are numerous dangers here for investors. One is a lack of focus at the company. Uber’s now involved in scooters, bikes, food delivery, freight shipping, and even a highly speculative bid to make self-driving cars. It’s not clear what the strategy is.
Then there are the legal and reputational problems. Foremost is a contentious fleet of 160,000 drivers who are bristling at being treated as contractors instead of employees, and denied healthcare and workers’ comp. There’s also the problematic workplace culture exposed in a viral blog post by a former employee in 2017… safety concerns… sexual misconduct between drivers and riders…
In truth, the company has been faced with so many controversies and boycotts (remember #deleteuber?) for such wildly different reasons, it seems apparent there’s a lack of leadership.
There’s also the risk that a lukewarm Lyft IPO — which will happen before Uber’s — could set the stage for a flop.
But for investors who can’t stand to sit this one out, we recommend taking an indirect approach.
We like Investopedia contributor James Garrett Baldwin strategy, outlined here:
“One indirect method is to invest in a publicly traded company that owns a sizeable share of Uber private stock. Some major Uber investors include Alphabet Inc. (GOOG), Microsoft Corp. (MSFT), Softbank (which can be bought OTC, the ticker is SFTBY), or private equity giant BlackRock Inc.(BLK). Given that Uber’s post IPO shares would become part of these investing company’s balance sheets, their stocks can realize strong gains when Uber’s private stock goes up.”
IPO Completed: March 29, 2019
Verdict: Invest, but Not Immediately
First up was Lyft, which IPOed at a $23 billion valuation.
We love the ride-hailing business as a medium-term investment – and think there will be advantages to being the first big IPO of this year – but have concerns about Lyft’s immediate viability. Consider, just for example, Wall Street’s struggle to set a PE value for Lyft. Is it a tech stock? A transportation stock? Or something else altogether?
We said to expect some heavy volatility out of the gate – and boy, were we right. The stock popped 18% above its IPO on the first day of trading. The next day, it crashed.
So what now?
We still like The Motley Fool contributor Chris Neiger’s strategy:
“While investing in Lyft could eventually prove to be a wise bet, it’s probably best not to do so right when shares become available. Historically, IPOs (on average) tend to underperform the market. Waiting for some of the IPO excitement to die down a bit and watching how Lyft performs for a few quarters as a publicly traded company is a much more prudent investing strategy. Individual investors likely won’t miss out on much of the share price gains (if any) by waiting, and they might actually get the chance to buy shares at a cheaper price if they hold off for a while before deciding to invest.”
IPO Completed: April 18, 2019
Verdict: Do Not Invest!
The photo-sharing app just IPOed, looking for a valuation of $12 billion. That might sound insane for a social media stock with slowing revenue of just $700 million last year, but there’s a good basis for it.
For one thing, the company has been aggressively adding new users to the tune of 50 million per year since 2016. Better yet, it’s organic “discovery” platform has proven the most conducive to shopping of all its competitors (Instagram, Snapchat, etc.). Pinterest integrated a seamless “buy” button. When users come across a product they want, they can shop directly in the platform. The sense we get is that this revenue stream has only begun to be explored.
We could see a nice run out of the gate for Pinterest, but don’t be lured in to this one. We see far too many similarities to Snapchat’s disastrous IPO to recommend an investment in Pinterest. Remember, Snapchat IPO investors are still out half their money, even after a nice rally. [Editor’s Note: Pinterest did pop 28% on its first day of trading. Our recommendation has not changed.]
If you must put some money into Pinterest, spread out your risk with something like the iBillionaire IPO PULPS strategy.
IPO Date Unknown
Verdict: Invest If You Are Accredited
In our view, Airbnb is the juiciest apple on the IPO tree. While full financial details aren’t available, it’s clear Airbnb has been profitable for years and rakes in a billion dollars revenues per quarter from its fees and commission on 6 million listings in 191 countries.
However, recent comments from Airbnb cofounder Nathan Blecharczyk makes it seem less likely the hotel disruptor will actually make its estimated $31 billion IPO in 2019.
For regular investors, that’s a real shame.
Date of IPO: Mid-2019
Verdict: Invest A Small Amount ASAP
You may not use Slack, the corporate messaging software, but 10 million people do, practically every day, to communicate and share documents in-office.
It’s a slick piece of technology that even makes email seem slow. Users get deeply entrenched in the world of Slack, which you can see clearly in the 76% revenue growth yoy ($389 million).
No wonder it has risen to the top among lots of competition; no wonder the IPO is one of the most hotly anticipated in years.
Slack has chosen the unusual route of a direct listing rather than an IPO, cutting out Wall Street banks, which levels the playing field for regular investors. But there are some issues with a direct listing, outlined perfectly by Bankrate:
- No guaranteed market. Slack shares will only come onto the market as insiders decide to sell it. Trading could be non-existent at first.
- Extra volatility. Without banks supporting the price and adding volume, as in a conventional IPO, price fluctuations will be intense.
- Dual share class structure. This structure gives certain insiders, usually company officials, voting control beyond their share ownership, disadvantaging regular investors.
- No restrictions on insiders selling. In a traditional IPO, the restrictions on insiders selling prevent knowledgeable insiders from fleecing unsuspecting outsiders. Not the case here.
Despite all this, we believe Slack’s long-term potential to be worth the risk in most cases. Invest a small amount at your discretion.