The Longhorn Investment Team IPO Report (2019)

Welcome to the Longhorn Investment Team IPO report! We continuously update this page, so you always have the latest info on the IPO class of 2019. Strap in because we’ve got a lot of ground to cover from deadly e-bikes to total cow disruption to publicly traded pyramid schemes (and we could mean that non-ironically)!

General Trends

We’ve had a big second quarter. Q1 of 2019 was unusually quiet for IPOs, with an 44% decline by deal number year over year. This was primarily due to geopolitical uncertainties like the trade war and the government shutdown. As trade talks supposedly started to improve over Q1, we saw the lion’s share of IPOs occurring in Q2 (or right now). Now that trade talks have gone south again, it’s reasonable to expect lot fewer in H2 of 2019.

Tech companies are less likely to IPO, and the ones that do are taking longer. In 2013, a venture capital (VC) backed startup would typically IPO 6 years after its founding. Now, it takes over 10 on average. There are a few reasons for this.

Namely, tech companies are getting massive rounds of funding from VC firms at a faster and faster pace, so why rush to go public? This phenomenon is referred to as the SoftBank effect. The SoftBank Vision Fund is a massive VC fund that threw Billions at companies like Uber and WeWork (now “The We Company”), which delayed their need to IPO.

Another contributor is that fewer tech companies are going public in the first place because they get acquired by bigger tech companies (Instagram, Qualtrics, etc.)  Private Equity buyouts of VC backed tech companies are also on the rise.

The implication here is that most of the growth in these established businesses was already captured by private investors, meaning the average stock trader is missing out on lots of the capital gains. This could particularly explain why ride-hailing giants with billions in private capital have performed so poorly (Uber and Lyft both saw slowing growth rates in the year before going public).

For example: Amazon went public at a $400 Million valuation and now it is worth roughly $900 Billion. Uber IPOd at around $100 billion, meaning they’d have to hit a valuation of over $200 TRILLION for public investors to see similar upside (WSJ).

The Bright-Side: more established startups have a much lower risk of failing. That’s a big reason why this wave of IPOs is distinct from the IPOs of the dot-com bubble. Back in the early 2000’s, undeveloped tech startups were turning to public markets with very little revenue – it was all hype. While many companies IPOing today are far from profitability, at least they are established companies with attractive top lines.

Who’s Gone Public?

Slack Technologies (WORK)

DPO Date: June 20th, 2019

DPO Price: $26

Category: Software Service

Operating at a Loss? Yes

Description: Slack is like Kik for nerds. It’s a business communication app with a GUI that is really confusing to me personally. Why would this app be worth $15 Billion on $400 Million in annual revenue? Now that I’m writing this… I don’t know for sure.

10 million daily active users is a good place to start. Slack’s ubiquity in the workplace definitely added to the IPO hype, but that hype vanished when Microsoft Teams – Slack’s direct competitor – took the crown for most daily active users (13 million).

Microsoft Teams has such a high usage rate because it is bundled with Microsoft Office 365. Want Excel and Word? Looks like you also get Microsoft Teams. This makes it really easy for companies to own and adopt Slack’s competitor, and it’s not like messaging apps have super high switching costs.

Slack’s CEO, the charming Stewart Butterfield, wasn’t concerned. His argument: Microsoft can force their Teams down peoples throats all day long – if they don’t nail user experience then they ultimately won’t keep much market share. Consumers were given Bing and Google+ by bundles and look how those products turned out.

Competition will only heat up. Investors need to keep an eye on the success of Teams as well as Slack’s ability to turn more of their 500,000 users into paying clients.

CrowdStrike (CRWD)

IPO Date: June 12th, 2019

IPO Price: $34

Category: Cybersecurity

Operating at Loss? Yes

Description: Founded in 2011, CrowdStrike is a cloud-based, cybersecurity SAAS provider that offers AI and machine learning based products to identify cyberattacks with unprecedented speed. In their first day of public trading, they soared 97% (probably because of how many buzzwords their business description contains). Last year, they a net loss of $140 Million on $250 Million in revenue (+100% yoy). Trading at roughly 50 times sales, it’s safe to say CrowdStrike is overvalued given financials metrics, but investors and customers alike are willing to pay top dollar for AI based cybersecurity. In fact, Blackberry just purchased CrowdStrike’s direct competitor, Cylance, for $1.4 Billion last November.

We could write a completely separate article about the bitter rivalry between CrowdStrike and Cylance. Basically, the founder of CrowdStrike and the founder of Cylance used to be BFFs, but things went South when one of them started CrowdStrike without giving the other guy enough equity, so the other guy founded Cylance. Both of them have goatees, both of them run almost identical businesses, and both of them hate each other. It’s absolutely riveting.

CrowdStrike’s Q1 fell in line with analyst’s expectations with earnings of -.47 per share and $96 Million in revenue. Their market cap has surpassed $17 Billion despite trade war noise, indicating that investors are treating the AI cybersecurity space as a winner-take-all market.

Chewy (CHWY)

IPO Date: June 14th, 2019

IPO Price: $22

Category: Software as a Service

Operating at Loss? Yes

Description: Chewy is an online pet food delivery service that was purchase by PetSmart for $3.4 Billion in 2017. While PetSmart still owns 70% of the company, they issued shares on the public market and raised about $1 Billion on their IPO date (80% price appreciation). Several big-dog competitors exist in the pet SAAS market from Amazon to General Mills, but Chewy hopes to differentiate themselves via strong customer service and a wide product selection.

Good News: Pet care is a pretty recession proof market. If a family stopped feeding Chester the chinchilla when times got tough, that’d be pretty messed up.

Ominous News: Chewy’s business model is strikingly similar to, the poster-child of the dot-com bubble that went bankrupt within 9 months of its IPO. Fortunately, the internet has evolved a lot over the past 20 years and Chewy’s strong revenue growth can keep it afloat.

Fiverr International (FVRR)

IPO Date: June 13th, 2019

IPO Price: $21

Category: Gig Economy

Operating at Loss? Yes

Description: Founded in 2010 straight outta Tel Aviv, Fiverr is an online marketplace with buyers and seller. Sellers offer freelance services from writing to video production to digital marketing – basically anything a businesses would want that doesn’t require in-person meetings. Buyers are businesses that want one of these services done for cheap. Fiverr gets its name from the starting fee they allow sellers to charge, which is $5. Get it?

They lost $36 Million on $75 Million in revenue last year. Fiver makes money by taking a 20% cut from each “gig” performed. User stats show 2.1 million buyers and 255,000 sellers.

One key issue with the service is the potential for low-quality submissions from sellers, who aren’t vetted by the site (even our writers are on it lmao). For instance, paying $15 for a plagiarized article isn’t adding value to the customer, and that can happen pretty frequently.

In Q2, Fiverr reported revenue of $25 Million (+14% yoy) thanks to a 14% increase in buyers and a 16% increase in spend per buyer.

Lyft (LYFT)

IPO Date: March 29th, 2019

IPO Price: $72

Category: Ride-Sharing

Operating at Loss? Big Time

Description: “Remember when Lyft went public despite losing about $911 million last year, an S-1 filing with a “Risk Factors” section the length of a novella and no clear plan to turn a profit in the foreseeable future? And then remember how people bought the stock anyway?” – Dealbreaker

April’s IPO put the L in Lyft. They’ve performed so poorly that investors nationwide recently sued Lyft for misleading shareholders in their S-1 over market share estimates. If that’s not bad enough, Lyft had to recall 3,000 of their e-bikes because “stronger-than-expected brakes” were flipping riders over the handlebars. Ouch. Oh yeah, in their Q1 of 2019 they lost $1.14 Billion on $776 Million in revenue ($894 Million in expenses were stock-based compensation and didn’t affect cash).

You may remember the awkward short-selling/lockup agreement suit from the week after Lyft’s IPO. That stuff is clarified here, but the situation is still muddier than a Future concert.

Uber (UBER)

IPO Date: May 10th, 2019

IPO Price: $45

Category: Ride-Sharing

Operating at Loss? Big Time

Description: Uber fell to the same “early-investors-ate-up-all-the-growth” trap that Lyft faced (they also had similar bike recalls to deal with). While they entered in the midst of a turbulent market, their IPO has certainly been disappointing given that they went public at a lower valuation than expected.

Uber was founded in 2009, and it has dominated the ride-hailing market since. Uber’s $11 Billion in revenue makes Lyft $2 Billion look silly! Moreover, Uber operates in more than twice the cities with three times the users (and drivers). Uber does lose more money than Lyft, but not on a margin basis.

That said, Uber has faced their share of blunders over the years from former CEO, Travis Kalanick’s slew of controversies to reports of drivers being underpaid (although Lyft is subject to the same criticism).

In Q1 of 2019, Uber reported $1.01 Billion in losses on $3.1 Billion in revenue. Skeptics have doubted whether or not Uber could ever generate positive cash flow for years now, and the fact that Uber’s ride-sharing business still has a negative contribution margin definitely casts doubt on Uber’s “grow at all costs” strategy. Despite Billions in public and private capital, Uber only has top-line growth to show for it. Make no mistake, Uber is at the center of the growth vs profitability debate – the elephant in the room for this year’s IPO class.

One key difference between Uber and Lyft lies in their long-term visions. While Lyft wants to continue to facilitate ride-sharing, Uber is ambitiously aiming to become the company that does all things transportation. This explains why Uber is expanding into other businesses like trucking and food delivery, and those are growing quicker than the core ride-sharing business. While becoming transportation’s Amazon would be great for investors, keep in mind Uber will have to throw a lot of money at such endeavors, which could prolong their route to profitability.

Beyond Meat (BYND)

IPO Date: May 2nd, 2019

IPO Price: $24

Category: Textured Vegetable Protein

Operating at Loss? Big Time

Description: Beyond Meat has been the hottest stock right out of the gate since 2000. That’s beyond crazy haha. Sorry I can hardly type right now I’m crying from laughing at my silly pun.

Anyway, Beyond Meat is going to serve you up some meat that doesn’t come from an animal because animals are a lot of work and their farts might be destroying our atmosphere.

Their CEO explains this better than I did:

“The animal serves as a bioreactor, consuming vegetation and water and using their digestive and muscular system to organize these inputs into what has traditionally been called meat,” he writes.

“At Beyond Meat, we take these constituent parts directly from plants, and together with water, organize them following the basic architecture of animal-based meat. We bypass the animal, agriculture’s greatest bottleneck.”

Beyond Meat is the first textured vegetable protein (TVP = fake meat) stock of its kind, and investors reacted by sending it to the $90 range in a matter of weeks. Reasons to be skeptical? First of all, there’s other TVP companies that exist, and they’ll probably be IPOing soon. One similarly-named firm, Impossible Foods, is among a squad of competitors who have more resources and operating margins than the crew down at Beyond. Combine that omen with Beyond’s substantial losses (that are expected to increase) and you have a pretty good case for bears.

BYND soared to over $170 before bouncing back to $130 as a reaction to JPM’s price target downgrade. That all happened in a matter of three sessions.

Despite beating EPS expectations by $0.01, it was clear the fake meat stuff was just getting out of control. The compound average growth rate for the TVP market is a disappointing 6.9% through 2021, so why did the stock shoot up so much?

What’s crazy is that so many investors shorted the stock, it actually helped to push the stock price up. 25% of the outstanding BYND shares were owned by short sellers, or people who were essentially borrowing the stock to bet on it decreasing. When BYND went up a little on good earnings, short sellers had to buy shares to cover or close out of their short positions, sending the stock even higher in an upward cycle. This is a classic example what traders call a short squeeze.

Analysts are growing weary of BYND’s competition and are reminiscing about FIZZ, the parent company of LaCroix. LaCroix was the first sparkling water to get really popular, and their stock surged 550% as a result. It didn’t take long for FIZZ to pare those gains when competitors like Topochico entered the market. Despite a significantly larger sparkling water market today, nobody buys LaCroix anymore, and FIZZ stock sucks. Similar omens are coming for BYND, as Tyson foods and Impossible foods kick it into high gear to take market share.

Yunji (YJ)

IPO Date: May 3rd, 2019

IPO Price: $13.42

Category: E-Commerce

Operating at Loss? Yes

Description: Founded in 2014, Yunji is a fast-growing social e-commerce platform in China. The company leverages the messaging app, WeChat, to allow paying members to buy and sell goods at discounts. Their direct competitor, Pinduoduo, has more than 10 times the users of Yunji, but Yunji isn’t far behind in revenue and is much closer to achieving profitability.

Are they a pyramid scheme? Xi Jinping thought so when he fined Yunji $1.4 Million and ordered them to change their marketing strategy. Yunji would essentially give members discounts for recruiting other members onto their site, which China constituted as pyramid selling. This could prevent an extra regulatory risk for investors because China’s definition of a pyramid scheme is a little wishy-washy.

In its most recent earnings, Yunji increased its transacting user base by 153% and its revenue by 53% year over year. While operating costs increased substantially across the board, the firm inked a profit a $2.5 Million (USD) for the quarter and the stock jumped 9% on the news before settling down a few days later.

Pinterest (PINS)

IPO Date: April 18th, 2019

IPO Price: $26.70

Category: Social Media

Operating at Loss? Yes

Description: Founded in 2010, Pinterest is a social media platform where you can share “pins” to show all your friends’ stuff you think is rad while Pinterest harvests those interests and turns them into advertising revenue. With over 250 million users, two-thirds of them female, Pinterest has a great audience for listening in on retail trends. Finally, signs of profitability are present, EBITDA margins improved from -35% to -19%, and revenue grew 43% yoy to $202 million in 2019 Q1.

Zoom (ZM)

IPO Date: April 18th, 2019

IPO Price: $36

Category: Software Service

Operating at Loss? Yes

Description: Zoom was founded by Eric Yuan, the former head of Cisco Webex, in 2011. Driven by ease-of-use and high interoperability, the videoconferencing company doubled sales in 2018 without losing money, which was good since investors needed a break from valuations that made no mathematical sense. This year, Zoom surpassed the milestone of hosting over 5 billion meeting minutes every month.

Zoom’s most recent earnings call reported yoy revenue growth of 103% thanks to a massive increase in customers with ten or more employees. While Zoom isn’t pulling in as many big fish clients as PagerDuty, their results were still impressive enough to send their stock price over $100. Hey, that’s pretty good!

Zoom’s earnings drop Thursday.

PagerDuty (PD)

IPO Date: April 11th, 2019

IPO Price: $24

Category: Software Service

Operating at Loss? Yes

Description: That’s right, pagers are back. Just kidding, PagerDuty is in the business of DevOp’s software, an emerging enterprise buzzword that entails improving communication between software developers and IT operators. This allows potential software crashes or bugs to be fixed before they become a serious problem. PagerDuty stock has popped off in the month following its IPO date, but they face larger competitors like Splunk and Atlassian, and their valuation is around 30 times sales. Morgan Stanley, one of PD’s lead underwriters, estimates PD an addressable market of $25 Billion, but is currently bearish on the stock.

Pagerduty is an elephant hunter. Instead of attracting a high number of small-business customers (like Zoom), PD goes after big players – think Fortune 100. This means that Pagerduty has the chance of hitting home-run contracts with tech giants, but would really suffer from customer churn – the loss of repeat clients.

PagerDuty’s first earnings report displayed a strong 49% year-over-year revenue growth (GAAP loss of $12 Million).

PD’s next earnings report drops tomorrow! In Q2, analysts are expecting the Silicon Valley Special: wider losses along with robust revenue growth.

Super League Gaming (SLGG)

IPO Date: February 26th, 2019

IPO Price: $11

Category: E-Sports

Operating at Loss? Yes

Description: Founded in 2014, Super League Gaming offers exposure to E-Sports by providing a cloud-based online community for Minecraft, LoL, Fortnite, and Clash Royale gamers. They focus on amateur e-sports and host physical tournaments as well. So far, their financials are terrible, but their market cap is currently just below $70 Million.

UPCOMING – we’ll update this page with new IPOs as well as any updates for the equities mentioned above, stay tuned! Here’s a preview of potential IPOs for 2019 H2.









WeWork/The We Company