2017 was a mixed year for IPOs. Some awful ones -- like Blue Apron and Snap -- burned investors. But others racked up huge returns within a very short time. Let's take a closer look at the three tech IPOs that ended the year with the biggest gains -- Roku (ROKU 3.38%), Redfin (RDFN 2.90%), and CarGurus (CARG -1.86%).
Roku went public last September at $14 per share, then finished the year at nearly $52 for a 270% gain. Investors were impressed by the content streaming company's growth numbers -- its revenue rose 25% in fiscal 2016, then climbed another 29% in the first nine months of 2017. The midpoint of its fourth quarter guidance implies that its full year revenues will rise 27%.
Roku is the top maker of streaming media devices in the US, but it faces growing competition from Amazon's Fire TV, Alphabet's Google Chromecast, and Apple TV. Despite that pressure, Roku's active accounts rose 48% annually to 16.7 million last quarter, its total streaming hours jumped 58% to 3.8 billion, and its average revenue per user (ARPU) climbed 37% to $12.68.
To widen its moat, Roku is pivoting away from hardware sales toward the expansion of its platform, which generates revenue from advertising and content partnerships. The bulls believe that strategy will work, but the bears see slowing hardware sales and higher expenses keeping Roku unprofitable for the foreseeable future. Roku's stock also isn't cheap at 10 times sales -- which is much higher than the industry average of 2 for pay TV companies.
Redfin went public at $15 per share last July, and the stock finished the year at about $31 for a 108% gain. The online real estate company provides database and brokerage services to homebuyers and affiliated realtors.
It aims to shake up the fragmented industry with its mobile app, machine learning technologies, and other proprietary services. In other words, Redfin combines Zillow (Z 3.90%) -like features with a full brokerage platform, so buyers and sellers can complete the transaction on a single platform.
Like Roku, Redfin has stellar top line growth. Its revenue rose 49% in 2015 and another 43% in 2016. During the first nine months of 2017, its revenue grew another 37%. The midpoint of its fourth quarter guidance implies 37% growth for the full year.
In addition to its streamlined real estate platform, Redfin charges lower listing fees and commissions than traditional platforms, and even refunds an average of $2,000 to homebuyers. At the same time, Redfin is investing heavily in the expansion of its digital ecosystem, which causes its operating expenses -- which rose 22% in the first nine months of 2017 -- to keep climbing.
As a result, Redfin is usually unprofitable on a quarterly basis, and hasn't presented investors with a long-term road toward profitability. This makes it a risky play at 8 times sales, which is quadruple the industry average of 2 for real estate service providers.
CarGurus strives to do for the auto sales industry what Zillow and Redfin are doing for homes. Its site helps users compare local listings for used and new cars, then connects buyers with sellers. The company went public last October at $16 per share, and finished the year at nearly $30 for an 87% gain.
CarGurus generates most of its revenues from marketplace subscriptions for dealers and ads from automakers and auto-related brands. Its revenue rose 101% in 2016, then climbed another 70% in the first half of fiscal 2017.
CarGurus believes that it's well poised to profit from the shift from offline to online sales for vehicles, especially when cyclical auto sales rise again. It also believes that it makes "complex and intimidating" auto purchases -- often the second biggest purchase a consumer will make after a home -- much easier to handle.
CarGurus is also profitable, although its margins remain thin. It generated $6.5 million in net income from $198.1 million in revenues in 2016, compared to a loss of $1.6 million in 2015. For the first half of 2017, it generated $0.5 million in net income. That bottom line growth is encouraging, but the stock remains pricey at 11 times sales -- compared to the industry average of 6 for internet information providers.