{"id":8276,"date":"2019-10-07T19:21:05","date_gmt":"2019-10-07T19:21:05","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8276"},"modified":"2022-02-26T13:07:09","modified_gmt":"2022-02-26T13:07:09","slug":"2019-tech-ipos-where-are-the-earnings","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/2019-tech-ipos-where-are-the-earnings\/","title":{"rendered":"2019 Tech IPOs: Where Are the Earnings?"},"content":{"rendered":"\n<p>In last week&#8217;s <em>Mitch on the Markets<\/em> column, I made the case that market pullbacks could boost the case for technology stocks. I elaborated by pointing specifically to strong price-to-cash flow metrics for some of the best names in the tech sector (relative to the S&amp;P 500), while underscoring robust return on equity (ROE). Though I do not advocate market timing, I made the point that during market pullbacks and corrections, investors may be able to take advantage of better entry points for long-term ownership of some of the best earnings generators in the world. <\/p>\n\n\n\n<p>I was referencing, of course, technology companies that <em>actually generate positive earnings<\/em>. <\/p>\n\n\n\n<p>Year-to-date, we have seen an influx of exciting new technology\nIPOs. Many of these companies have flashy brand recognition with exceptionally fast\ngrowth rates and multi-billion dollar valuations. But many of them have also\nnever turned a profit.<\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_10_7&amp;content=stock_market_outlook_report\">Economic Indicators You Should Keep an Eye On!<\/a><\/strong><\/p>\n\n\n\n<p>You are probably wondering \u2013 \u201cIf not tech, where should I focus my attention?\u201d I suggest avoiding the urge to get caught up in day-to-day movements or the hype surrounding a specific security, category or companies like new tech IPOs, and instead focus on economic data releases, earnings reports, and other economic factors!<\/p>\n\n\n\n<p>To help you do this, we are offering all readers a look into our\njust-released&nbsp;<strong>October 2019 Stock Market Outlook report.<\/strong><br>\n&nbsp;<br>\nThis report will provide you with our forecasts along with additional factors\nto consider:<strong><\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Should you stay bullish?<\/em><\/li><li><em>What sectors\u00a0show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>What produces U.S. optimism in the coming year?\u00a0<\/em><\/li><li><em>Year-end forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br> <br> <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_10_7&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released October 2019 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_10_7&amp;content=stock_market_outlook_report\">1\u00a0<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>______________________________________________________________________________<\/p>\n\n\n\n<p>At Zacks Investment Management, our earnings-centric focus dictates\nthat most \u2013 if not all \u2013 of these high-flying growth IPOs will not make their\nway into our strategies upon being listed. We need to see sustained earnings\ngrowth and rising earnings projections over time, and we want to own companies\nthat beat earnings expectations consistently \u2013 <em>not companies that have no earnings at all.<\/em><\/p>\n\n\n\n<p>Back in the late 1990\u2019s, many investors fell into the trap\nof buying newly listed technology companies for reasons other than earnings.\nThere was widespread \u201cfear of missing out\u201d as money poured into dot coms with\nexcessive valuations and negative cash flow. Most remember what happened next. <\/p>\n\n\n\n<p>You could argue that we\u2019re seeing a similar\nenvironment today, where many IPOs are listing at valuations that are sometimes\ndouble or triple what\u2019s justified. Interestingly enough, however, the market\u2019s\nreaction appears to be much different this time around. Many of the most recent\nhigh-profile IPOs have fizzled out of the gates, with investors wary of\noverpriced, overvalued companies with untested leadership and no clear path to\nprofits. <\/p>\n\n\n\n<p>I\u2019ll give you five examples of what I mean:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Uber\n(UBER) \u2013 <\/strong>Shares have fallen nearly -30% since their debut,\nas the company said it lost over $5 billion in Q2 and reported its slowest\nrevenue growth in the company\u2019s short history.<sup>2<\/sup> <\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Lyft\n(LYFT) \u2013 <\/strong>Uber\u2019s main rival is also yet to post a\nprofit, and investors may see Uber as too difficult to surmount in the long term.\nShares are off nearly -50% since listing.<sup> 2<\/sup> <\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Peloton\n(PTON) \u2013 <\/strong>The fitness\/bike start-up has reported deep\nlosses for its in-house stationary bike technology, shedding -11% on its first\nday of trading and off about -2% since.<sup> 2<\/sup><\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Slack\n(WORK) \u2013 <\/strong>The company with a mission of eliminating\nemail from corporations for more streamlined and organized communications is\noff nearly -40% since its IPO.<sup> 2<\/sup> <strong>&nbsp;<\/strong><\/li><\/ul>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>WeWork\n(not listed) \u2013 <\/strong>The shared office space company experienced\nsomewhat of an epic downfall in its approach to listing. It went from enjoying\na private market valuation of $47 billion, to watching its valuation plummet to\n$15 billion and its CEO get ousted right around the proposed time of listing. Investors\ngot a look at the financials and haphazard management, and punished the company\nfor -$1.37 billion in losses in the first half of 2019. WeWork pulled its\nplanned IPO as a result.<sup> 2<\/sup> <\/li><\/ul>\n\n\n\n<p>Compare these names to a company like Google, for instance.\nGoogle went public in 2004 with a remarkably high $23 billion valuation, but\nthe company had also reported a $400 million profit for the year. Amazon went\nanother way, selling shares only three years after its founding in 1994, but\nwith a paltry valuation of just $400 million. Amazon raised just $62 million in\nits IPO but is worth almost $1 trillion today.<\/p>\n\n\n\n<p>The point here is not that any or all of these unprofitable\nIPOs are destined to fail. It may be that they all turn a profit within a year\nor two and start growing earnings at a nice clip. The point is that as long as\nthey are losing hundreds of millions or even billions of dollars, in my view\nthe risk, price, and valuation are probably all way too high. <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors <\/strong><\/p>\n\n\n\n<p>When I made the case for technology stocks benefiting from\nmarket pullbacks, I was referring to the crop of tech companies with\nestablished businesses, positive and increasing earnings, and robust\nleadership. In the IPO world, you may find companies with some <em>but not all<\/em> of those qualities, that\ninstead bear the promise of exponentially fast growth rates and high\nrisk\/reward profiles. Not my cup of tea. <\/p>\n\n\n\n<p>Instead of getting swept up into the tech craze, I recommend focusing on the fundamentals with our\u00a0<strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2019_10_7&amp;content=stock_market_outlook_report\">Just-Released October 2019 Stock Market Outlook Report <\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions to consider that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>Should you stay bullish?<\/em><\/li><li><em>What sectors show the best opportunity?<\/em><\/li><li><em>What industries within those sectors most merit your attention?<\/em><\/li><li><em>What produces U.S. optimism in the coming year?\u00a0<\/em><\/li><li><em>Year-end forecast for the S&amp;P<\/em><\/li><li><em>Small-cap vs. large-cap returns <\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!\u00a0<sup>3<\/sup>\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Some of this year\u2019s high profile, high growth companies have never made a profit<\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8276","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8276","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8276"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8276\/revisions"}],"predecessor-version":[{"id":10697,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8276\/revisions\/10697"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8276"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8276"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8276"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}