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Friday Four Play: IPO Edition

Friday Four Play: IPO Edition

Initial public offerings (IPOs) are finally cool again!

Uber Technologies Inc. (NYSE: UBER) and Lyft Inc. (Nasdaq: LYFT) tried their hardest to scuttle enthusiasm in the IPO market. But Wall Street has finally shaken off those doldrums.

I mean, Uber is finally trading back above its IPO price … so we’re all good, right? (Sorry, Lyft … your time will come.)

Oh … there was one more IPO this year. Beyond Meat Inc. (Nasdaq: BYND) is doing pretty OK. But Uber and Lyft made up the real IPO market … at least according to the financial headlines.

Hold on, you mean there were other IPOs this year besides Uber, Lyft and that meatless company?

Indeed there were, fair Great Stuff reader.

And some of those companies are making serious headlines this morning.

Let’s broaden our IPO minds a bit [Note: link to MIP IPO Speculator promo], shall we?

No. 1: To Meat and Beyond

Vegan valedictorian Beyond Meat slipped into the earnings confessional last night to wow Wall Street watchers. The purveyor of plant-based perfection blew out analyst expectations with a 215% surge in net sales.

With demand rising for its now-iconic Beyond Burger, Beyond Meat said that 2019 full-year revenue would come in north of $210 million — besting the Street’s view for $205 million.

The Takeaway: 

So far, BYND is the hottest IPO of 2019. Its shares have soared nearly 300% above its IPO price and show no signs of slowing down. Some analysts may have a beef with BYND’s valuation right now, but the company continues to show moxie in the face of this lingering bearish sentiment.

That said, investors might want to pause and let BYND settle in before buying. Shares are up 26% today following earnings, and there’s sure to be some profit-taking. Consider a buy range in the $110 to $120 area depending on your risk tolerance.

No. 2: You Said “Duty”

PagerDuty Inc. (NYSE: PD) is probably the hottest IPO you haven’t heard about. What does it do? That’s a good question…

It, umm … well, it pages on-duty IT professionals over the cloud. But we’re not talking the kind of pagers that Brian used to use in high school for his “weed business.” These are digital.

Basically, the company uses integrated real-time data from network- and cloud-monitoring software to notify your IT team that something has or is about to go wrong. Clear, right?

It’s all about “up time” and “response time.” And time is money, as PagerDuty proved with last night’s earnings report. The company bested earnings expectations by a penny, beat revenue targets by $2.3 million and placed full-year guidance above Wall Street expectations.

The Takeaway: 

PD stock has more than doubled since its IPO, rising nearly 5% today. The company is a true technology IPO play, unlike some other IPOs I could mention. And it’s smack in the center of the cloud-based services revolution. It doesn’t make the business-cloud services that nearly every Fortune 500 company now uses — instead, it makes those services better. If you were looking for a new angle to play the cloud market, PagerDuty is worth taking a closer look at. And you thought pagers were dead.

No. 3: Zoom a Zoom, Zoom, Zoom

Zoom Video Communications Inc. (Nasdaq: ZM) has investors shaking their rumps this morning. The business-cloud video platform went public back in April for $36 per share, and after this morning’s 20% surge, is trading just north of $96.

Zoom is zipping higher following its first quarterly report as a publicly traded company (there’s a lot of that going around today).

By the numbers, Zoom swung to a profit of $0.03 per share while revenue zoomed 103% higher to $122 million. Both figures topped expectations. The company also put full-year guidance above Wall Street’s targets.

The Takeaway: 

The business-cloud market is heavily saturated. Unless you’re doing something unique, like PagerDuty, you’re going to have a bad day. Zoom competes directly with the big boys of tech — Microsoft Corp. (Nasdaq: MSFT), Cisco Systems Inc. (Nasdaq: CSCO) and the like. This could spell trouble for Zoom down the road, as it’s not quite as disruptive as other cloud services.

It will be interesting to watch Zoom for now, but I think its biggest upside is as an acquisition target for another large-cap tech company looking to get into the cloud-video market.

No. 4: Slacking Off

There are so many cloud-services companies popping up lately, it’s like we’re living in Cloud City. Apparently we need at least one more, so get ready for yet another cloud company to go public in the business-services sector later this month.

Slack Inc. has plans to go public on June 20 under the ticker symbol WORK. The company is following Spotify Technology S.A.’s (NYSE: SPOT) lead by doing a direct listing. In other words, Slack is going public without raising any new capital.

The Takeaway:

It’s a bold move that worked for Spotify, but it has considerable drawbacks, the first of which is volatility. Without the usual “IPO road show” and IPO “book building,” no one knows exactly what they’ll pay for WORK stock once it’s publicly available.

According to Slack’s S-1 filing, the company’s shares have traded between $8.37 and $31.50 per share since January 2018. That kind of uncertainty can drive investors away from the IPO rather quickly.

Then there’s the fact that Slack is just one more cloud business-services company hitting the market. But Slack already has a considerable number of customers: more than 500,000 companies with roughly 10 million daily active users. Pretty impressive, but not enough to throw darts at the pricing board following the IPO.

If you want to invest in Slack, wait for the price to stabilize. We should have a good handle on pricing after its first quarterly report as a public company.

Turn on your images.

This report, combined with nerves around tariffs, will be enough to force a rate cut from the Fed in either June or July. Whether that is enough to satisfy markets will depend largely on how trade policies evolve.

— Curt Long, chief economist of the National Association of Federally-Insured Credit Unions.

The Fed can mitigate some of the adverse effects, but I’m not sure the Fed is inclined to move fast enough or significantly enough to entirely offset the effects of this trade war. 

— Nathan Sheets, chief economist at asset manager PGIM Fixed Income.

The weak May jobs report has everyone in a tizzy this morning. The market is rallying on hopes of an interest-rate cut from the Federal Reserve, which many now believe will happen this month.

But with rates already low in the U.S., economists like Curt Long and Nathan Sheets have their doubts as to whether the Fed can actually make a difference.

Be careful out there!

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Until next time, good trading!

Regards,

Joseph Hargett
Great Stuff Managing Editor, Banyan Hill Publishing

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