Savvy investors know that investing in IPOs can be fraught with peril.
Recently minted companies don't have much of a track record, and operating in the glare of the public spotlight has a very different set of rules than those for being a private company. For those reasons, many investors avoid shares of newly listed businesses, giving them time to mature and grow -- and prove themselves -- before plunking down their hard-earned investment dollars.
Now that some time has passed and the IPO excitement has settled, several recently public companies might be worth a second look. Here's why investors might want to consider investing in Slack Technologies (WORK), Beyond Meat (BYND 3.31%), and Zoom Video Communications (ZM -0.11%).
Image source: Slack.
1. This company is no Slack-er
Slack Technologies took an unconventional approach to the public markets, opting for a direct public offering (DPO) rather than a typical initial public offering (IPO). Shares of the workplace collaboration app soared on its first day of trading, gaining more than 48% on its debut in June, but things have been all downhill since then.
Fears of competition from big tech companies like Microsoft (MSFT 0.48%) already had investors pessimistic, and reports that its rival product Teams had grown 53% in four months only elevated the concerns. Slack's tepid growth forecast during its freshman earnings report didn't help either, stoking the coals of investor concerns.
Recent results appear to have put some of the worries to rest, at least for the time being. Slack's third-quarter revenue grew by 60% year over year to $169 million, while its adjusted loss per share of $0.02 was far better than the $0.30 per share it lost in the year-ago quarter. Paid customers generating more than $100,000 in annual revenue grew 67% year over year, while overall paying customers grew 30%. Slack's net dollar retention rate of 134% shows existing customers are increasing their spending, contrary to what investors feared.
In another sign of company strength, recently introduced features are resonating with Slack customers. Shared Channels, which allows people from different organizations to collaborate, is already being used by 80% of the company's biggest customers -- and it was only released midway through last quarter.
With all that going for it, Slack deserves another look.
Image source: Beyond Meat.
2. Hungry for Beyond Meat
Plant-based burger maker Beyond Meat was the belle of the ball when it debuted back in May, soaring 163% above the IPO price on its first day of trading. Investors were hungry for the stock of the first publicly traded faux-meat company, and the surge didn't stop there. Shares climbed as high as $239, growing nearly 10-fold from its IPO price, before gravity took over, bringing the stock back down to earth, where it's currently trading north of $73 a share.
There's plenty of evidence that plant-based meat substitutes are entering the mainstream. Given Beyond Meat's long-term prospects, the stock may be ripe for the picking. A growing number of consumers are clamoring for healthier options, while others are concerned with animal welfare, prompting numerous food retailers to jump on the bandwagon.
Dunkin' Brands has already rolled out a Beyond Meat breakfast sausage nationwide, and fast-food pioneer McDonald's is testing a Beyond Meat P.L.T. Burger (plant, lettuce, and tomato). The faux-meat maker just announced that Beyond Burgers will soon be available at select Costco stores in larger multipacks befitting the warehouse retailer's reputation.
A quick look at the financials underscores the trend. In the third quarter, Beyond Meat's net revenue grew 250% year over year (no, that's not a typo) to $92 million, while net income grew to $4 million, compared to a loss of $9 million in the prior-year quarter. The profits are growing as production volumes increase, showing that the operation is scalable.
We're still early in the trend toward plant-based proteins, but the movement is picking up steam, so now may be the right time to give Beyond Meat a little taste.
Image source: Zoom Video Communications.
3. Take Zoom for a spin
Shares of Zoom Video Communications followed a similar trajectory to those of Beyond Meat, though not quite to that extent. Zoom was one of the few recent IPOs that was already profitable before its IPO. Stock for the video conferencing company was priced at $36 and quickly rallied 72% on its first day of trading. Zoom still had more gas in the tank, closing above $100 per share before beginning a prolonged and steady downturn that brought the shares back below $70.
If you think Zoom is merely about top-quality video conferencing technology, think again. The company is giving businesses integrated tools to foster collaboration, including document sharing and a team chat feature. Additionally, its home in the cloud makes it much more reliable than competitors' patchwork offerings.
Recent results show the company is on track, delivering third-quarter revenue of $167 million, up 85% year over year. Zoom also delivered net income of $2.2 million, up from a loss of $0.6 million.
Booming customer metrics are driving the company's financial growth. The number of customers spending more than $100,000 annually is soaring, increasing to 546, up 97% compared to the prior-year quarter. The company sports 74,100 customers with more than 10 employees, up 67%. The net dollar expansion rate for customers with more than 10 employees was above 130% for the sixth consecutive quarter.
With metrics like that, now's the time to revisit Zoom before Wall Street realizes the error of its ways.
