Only about a dozen or so consumer goods companies have gone public this year, a quarter of which are Chinese online educational services. Some of the best-performing IPOs in the sector represented a diverse group of businesses, including an online luxury retail platform, a warehouse club, and a casino games maker.
Beyond the online learning centers, which as a group have stumbled horribly, others at the bottom of the pile are a similarly eclectic group spanning electric scooters, home security, and a cooler maker. Let's take a closer look at why these three IPOs have failed to catch on.
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ADT (down 56%)
Considering the popularity of the security camera offerings from Arlo Technologies (ARLO 0.38%), Ring, and Nest, it may be a little surprising how poorly home security leader ADT (NYSE: ADT) has performed since going public in January.
ADT is the biggest home security provider, with over 7 million customers and a 30% share of the market, but it is that competition, which allows for self-monitoring over smartphones rather than a central station (though the other services offer that, too), that has caused ADT to fall.
The IPO was supposed to price between $17 and $19 per share, but it ended up going off for $14, and it's mostly been downhill from there. ADT recently closed at just above $6 a share, as not even the market's recent big surge was able to lift the stock.
By putting the ability to take charge of security in the hands of the consumer, the rationale for having long-term customer contracts has been negated. ADT derives over 90% of its revenue from such contracts, which doesn't bode well for Arlo, as it's trying to transition away from being just a hardware maker to being one that generates recurring revenue streams from monitoring services.
Niu Technologies (down 32%)
Niu Technologies (NIU -0.98%) has become almost synonymous with electric scooters in China, where it generates 95% of its revenue. It has a 26% share of sales for the lithium-ion scooter market and a 40% share of the market's volume. The second biggest scooter maker has only a 7% share.
Revenue is also growing sharply, surging 86% in the third quarter, with guidance calling for 69% to 78% growth in the fourth. At the same time, Niu drastically narrowed its losses in the period while generating positive operating and free cash flows. So what's not to like since it went public in October?
There were seeds of doubt from the beginning. Although it had been rumored it would raise $300 million in its IPO, when Niu subsequently filed it said it was seeking only $150 million. That was later amended to only $104 million, and when it offered shares at $9, Niu raised just $63 million.
Part of the problem probably relates to the collapse of the markets in October, as well as trade tensions between the U.S. and China, but also because of concerns regarding continuing losses at the scooter maker. Although it narrowed its losses in the third quarter, it's not expected to be profitable anytime soon.
Yeti Holdings (down 21%)
Yeti Holdings (YETI -0.08%) was another stock that went public during October and suffered for it, though it was hurt more by its first quarterly earnings report as a public company. Although it beat analyst estimates on the top and bottom line, it also revealed weakness in selling its high-end coolers, which have developed a cult-like following among some outdoorsmen. Drink-related items such as tumblers and mugs are selling well, while cooler sales have, well, cooled off.
Revenue seems to expand and contract like a freeze and thaw cycle, and it's been difficult to pin down any sort of steady-state condition for Yeti, which now wants to expand its retail footprint beyond just one flagship store by opening four to six stores each year for the next two years.
The retail landscape isn't particularly robust right now, and investor concern over the direction Yeti is heading has muted its stock's potential, which has lost a fifth of its value from its $18 offer price.
Although Yeti raised $288 million from its IPO, the cooler maker netted only $38 million, most of which was going to pay down its debt. That's because while most companies IPO to raise money for expansion, only 2.5 million of the 16 million shares offered belonged to Yeti. It was mostly Yeti's financial backers and founders selling stock.
Yeti Holdings is off to an inauspicious start, but the quality and durability of its coolers, plus the high regard in which consumers hold them, suggests there is a chance to turn things around.
