Boltwood Capital Management | Boom or Bust? Tech IPOs Can Go Either Way.
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Boom or Bust? Tech IPOs Can Go Either Way.

2019 is expected to be a big year for initial public offerings (IPOs), with well-known names including Uber and Pintrest expected to join the ranks of public companies in the coming months. How these IPOs treat investors remains to be seen.

Ride-hailing company Lyft (LYFT) – Uber’s primary competitor – went public on March 29th. After seeing healthy demand in the days leading up to the public offering, Lyft had priced its IPO at $72 per share, above the initially given range of $62 to $68. Despite that price hike, Lyft’s shares started trading at $87.24 on Friday, more than 20 percent above the initial price. However, since their debut, Lyft’s shares have had a more difficult time, losing more than a quarter of their value as of this writing.

During the days of the dot-com boom, tech IPOs had the reputation of being an easy win for investors, with big first-day gains virtually guaranteed. In recent years however, the market has cooled off and there are plenty of examples of tech companies that couldn’t live up to their pre-IPO hype. Companies such as GoPro, Groupon, Sonos and Fitibit are currently trading well below their IPO prices, leaving IPO investors who held on to their shares with a hefty loss on their hands.

There are other examples as well, as the chart illustrates. After a poor start as a public company, Facebook successfully turned things around and IPO buyers who were patient enough not to lose faith have more than quadrupled their investment by now. The same holds true for payment company Square, which went public in November 2015 and is now worth more than 8 times as much as it was back then. Only time will tell how the class of 2019 will fare.

The above content is intended for general information purposes only and should not be interpreted as advice.

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