The 3 Best Recent Tech IPOs to Buy in 2017

Technology companies can go from hot to cold quickly, but these three look set for long-term success.

Daniel B. Kline
Daniel B. Kline
Jun 5, 2017 at 9:51AM
Consumer Goods

Technology companies sometimes fail to withstand the test of time.

A number of major players from recent history either no longer exist or operate in a much-diminished capacity. Companies like Netscape, MySpace, Excite, and so many others were big for a few years, then flamed out entirely. That's why tech companies that make it to an initial public offering are rare.

What's even more rare, though, are technology businesses that not only manage to go public but remain successful after the IPO. It can be a challenge to settle down into growing a stable business once the initial "wow" factor fades, but to varying extents, all three companies listed below have managed to do that.

That does not mean that Shopify (NYSE:SHOP), Twitter (NYSE:TWTR), and Facebook (NASDAQ:FB) have conquered every problem they've faced. Battles remain for all three, though their potential struggles vary. But these are technology brands here for the long-term, and all represent solid investments.

Shopify is seen on a phone and tablet.

Shopify helps website owners set up a store. Image source: Shopify.

A solid subscription business

Shopify, which went public in May 2015, has managed to take over a major chunk of what had previously been a very fractured business. The company offers individuals and companies an easy way to both build websites for the purpose of selling goods and services, or to add a sales function to existing sites. It's a subscription-based business that gives the company predictable revenues.

In the first quarter, Shopify's revenue grew by 75% year over year to $127.4 million. Subscription revenue made up about 60% of that, which the company attributed to "a record number of merchants" joining its platform during the quarter. Those numbers should steadily increase each month as more people and companies sign on.

One of the strongest aspects of Shopify's business is that the nature of the service it offers means its customers can't easily switch to a competitor without disrupting their business. In addition, Shopify has some protection from being squeezed out of the market by technological advances. Its solutions work on the web and in mobile, so there's no reason to believe customers won't stick with the brand in augmented reality, virtual reality, or whatever the next platform may be.

Strong potential

Twitter has struggled to monetize its audience. But, worth noting, the same was said about Facebook in the period after its 2013 IPO, and the social media giant eventually turned it around. Today, the 140-characters-or-less social network is finally showing signs of doing that too.

In Q1, Twitter still lost money ($62 million) and saw its overall revenue drop 8%. However, its average monthly active user (MAU) count grew 6% to 328 million. The number of daily active users (DAU) grew an even stronger 14% year over year, "an acceleration from 11% in the fourth quarter,7% in the third quarter, 5% in the second quarter and 3% in the first quarter of 2016," according to the company's earnings release.

Those are strong positives, since as long as a company has an audience, it's possible to grow revenue. Twitter has to find the right way to make money from its user base, but if it can do that, it should see its share price skyrocket.

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The monster in its space

Facebook has so thoroughly dominated the social media space that it's easy to forget how mightily the company struggled after its 2012 IPO. Like Twitter, Facebook had trouble monetizing its audience. That's certainly no longer the case; in Q1, the company grew its revenue by an astounding 51%.

In addition, despite its size, Facebook continues to get bigger at a rapid pace. Its DAUs came in at 1.28 billion on average for March 2017, an 18% increase over the year-ago period while MAUs grew by 17% to 1.94 billion. Perhaps most importantly, the company has shown that it won't be left behind as consumers increasingly view social media on mobile devices. In Q1, 85% of Facebook's advertising revenue came from mobile, up from 82% in Q1 2016.