What I’ve Learned From Successful Mega IPOs
I’ve worked in the investment research field for many years.
During this time, I’ve overseen my fair share of research projects covering a variety of themes.
But one of the most fascinating topics I’ve had the opportunity to research in recent times is initial public offerings, or IPOs for short.
Last week, I was discussing the topic of IPOs with a close family member.
I was excited to share with him some information I gleaned from a breaking news article.
I regard this person as the patriarch of the family.
He’s full of wisdom and knowledgeable about many subjects.
Yet the response I received was surprising.
He asked: “What the heck is an IPO?”
I was taken aback.
I thought: Wow … this is a classic case of how not to make assumptions about anything.
So, I thought I’d take the opportunity for this week’s article to share with you what I’ve learned about the anatomy of a successful IPO.
The Anatomy of an IPO
First, what is an IPO?
When a privately held company wants to raise tons of cash in order to grow and evolve, selling shares to the public is one of the best ways to do so.
Sure, the company can borrow money from lenders or court private investors for additional funding. But one of the most lucrative methods to inject cash into its coffers is to “go public.”
IPOs are not a new concept.
The earliest IPO dates back to the early 17th century.
Their 400-year history proves that they have staying power and are integral in the world of investing.
2 Successful IPOs
Overall, IPOs are extremely beneficial for companies and public shareholders alike.
Many private companies that go public see their value grow exponentially, and their shareholders reap the benefits with rising share prices.
In addition to innovation, one of the key ingredients for a successful IPO (and long-term prosperity) is for the company to produce products or offer services that customers want.
Check out the performance price charts of two successful IPOs within the past couple of years:
Roku Inc. (Nasdaq: ROKU), a pioneer in the video-streaming market, went public on September 27, 2017.
In that short amount of time, the company’s share price soared 369%.
Plus, its revenue increased 45% and is projected to more than double by 2021.
Okta Inc. (Nasdaq: OKTA), a leading user-authentication enterprise, “securely connects the right people to the right technologies at the right time.” It helps protect the identities of its clients’ workforce and customers.
Okta has over 6,100 clients.
Its customers include Twentieth Century Fox, Ally Financial, MGM Resorts, Dish, DocuSign, Box, Splunk, JetBlue, Nordstrom, Slack, Teach for America and Twilio.
Okta, founded in 2009, went public on April 6, 2017.
In that short amount of time, the company’s share price catapulted 534%.
Its revenue gained 148% and is projected to nearly double by 2021.
The Top 10 Performers
In all, since January 2017, 423 U.S. companies have gone public.
Of these new-to-market companies, there have been winners and losers.
But, per Bloomberg data, investors who bought shares in the right company have made gains of up to 559%.
Here’s a list of the top 10 performers:
So, as you can see, with thoughtful investing and due diligence, IPOs offer the opportunity for companies and investors to forge profitable relationships.
How to Participate in the IPO Boom
2019 continues to be the year of mega IPOs.
A promising way to participate in the IPO boom going on right now is the Renaissance IPO ETF (NYSE: IPO).
This exchange-traded fund (ETF) provides investors with exposure to newly public companies.
Until next time,
Director of Investment Research, Banyan Hill Publishing