The initial public offering (IPO) market has ground to a halt over the past month as the novel coronavirus (COVID-19) pandemic has forced several private companies to postpone their public market debuts. But as investors await the next batch of new offerings, now might be a good time to look back at some recent tech IPOs to see how they are doing and whether they have proven resilient throughout the broader market downturn that has dominated the news over the past two months. Here are three recent IPOs worth revisiting.
1. Slack Technologies: Well-insulated from the current crisis
Slack's (NYSE: WORK) platform helps employees connect with each other via messaging and collaboration tools. Usage of these services should surge throughout the COVID-19 crisis as more people are forced to work from home for long stretches.
Image source: Getty Images.
Slack went public via a direct listing -- where employees of the company offer their existing shares for sale to the general public rather than creating new shares for initial offer -- last April. The stock currently trades slightly below its initial price of $26 a share due to concerns about its slowing growth, lack of profits, and competition from rivals like Microsoft Teams.
However, Slack still enjoys a first-mover advantage and is growing at a healthy clip. Its revenue rose 57% to $630.4 million last year as its total number of paid customers with over $1 million in annual recurring revenue jumped by 39%. Slack expects its revenue to rise 34%-37% in fiscal 2021, with a narrower net loss.
Slack's business remains well-insulated from the COVID-19 crisis, and it's an attractive option for companies that don't want to tether themselves to big tech companies like Microsoft. Slack's stock isn't cheap at 16 times this year's revenue, but its resilience throughout the pandemic could justify that premium valuation.
2. Pinterest: Growing rapidly despite the crisis
Pinterest (NYSE: PINS) also went public via a direct listing last April, and it still trades below its initial price of $19 per share. Pinterest got off to a strong start, but the stock was eventually weighed down by concerns about its slowing growth (especially in the U.S.) and its lack of profits.
The coronavirus crisis also cast doubts on the future of its core advertising business, which was evolving into an e-commerce platform when the pandemic struck. That shift, which let users shop via pins and retailers upload their entire catalogs to the platform, was widening its moat against Facebook's Instagram and other social networks.
Yet Pinterest is still growing rapidly. Its revenue rose 51% to $1.14 billion last year as its monthly active users grew 26% to 335 million and its average revenue per user rose 21% to $3.81. Most of its user growth is coming from overseas markets, but its domestic users still generated 90% of its revenue.
Pinterest expects its revenue to rise by 33% in 2020 as it monetizes more pins via ads and e-commerce features. Its ad growth could decelerate throughout the coronavirus crisis, but its user base should continue expanding as people spend more time at home. The stock is also reasonably valued at less than six times this year's sales.
Image source: Pinterest.
3. GSX Techedu: Benefitting from the need to stay at home
Last June, the Chinese online education company GSX Techedu (NYSE: GSX) went public at $10.50 per ADS. The stock has more than tripled since then, as the coronavirus outbreak in China unexpectedly lit a fire under its remote learning services.
GSX's live streaming platform allows instructors to teach up to 100,000 students per session, and it claims to only hire certified teachers instead of freelancers. It also develops its own in-house curriculum instead of relying on third-party materials.
GSX's revenue surged 432% last year, its gross billings jumped 413%, and its net income soared 659%. Its total enrollments increased by 258% to 2.74 million. It didn't provide guidance for the full year, but it expects its revenue to rise 303%-311% annually in the first quarter.
Those growth rates are phenomenal, but GSX still faces intense competition in China's online education market, and it's increasingly dependent on free trials and promotions. The stock is also richly valued at 120 times forward earnings. Nonetheless, investors seeking a speculative play that can weather the coronavirus crisis should take a closer look at this multi-bagger stock, which could still have more room to run.
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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook, Microsoft, Pinterest, and Slack Technologies and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.
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