IPOs, or initial public offerings, provide an opportunity for investors to get in on the ground floor, and that's what makes them so popular. In most cases, companies go public to raise additional capital for growth and expansion.
This allows investors to ride the growth wave and generate market-beating returns if the company goes on to deploy capital efficiently and gains enough traction to sustain revenue growth over the long-term.
2019 has seen numerous high-profile tech companies go public, although many of those have delivered underwhelming performance thus far. Here are two promising tech companies that went public in 2019. Both have exciting prospects, making them enviable bets for the forthcoming year.
Zoom Video Communications
Zoom Video Communications (NASDAQ:ZM) went public in April 2019, issuing more than 20 million shares for $36 apiece to raise $752 million. Zoom is part of the rapidly expanding enterprise collaboration segment.
Zoom's portfolio of solutions includes video conferencing and messaging across devices as well as integrated conference room systems. Its Zoom Phone and Zoom Chat offerings are fast gaining popularity among customers.
Zoom Phone expanded into three countries in October and is now available in seven geographies, including the major markets in North America and the U.K. Zoom also beta tested the comments and reactions features for Zoom Chat and has garnered a positive response from clients.
In its most recent quarter that ended in October, Zoom Video managed to beat consensus estimates on revenue and earnings. However, the stock still lost significant value post-earnings as investors are were concerned over slowing revenue growth.
While Zoom Video sales were up 85% in the fiscal third quarter, it estimated sales to rise by 66% in the fourth quarter. Maybe investors were concerned over the stock's high valuation metrics or that a sluggish macro environment will result in lower enterprise tech spending in 2020.
The recent pullback provides an opportunity to buy Zoom Video at a price significantly below its record high of $107.34.
Founded in 2011, Zoom Video ended the fiscal third quarter of 2020 with 74,100 customers. In 2019, the company managed to bag contracts with banking giant HSBC and has also partnered with Verizon Business Group. In the third quarter, it inked deals with the United Postal Service as well as National Australia Bank. Both these organizations have a huge employee base and can adopt other Zoom services over time.
During the earnings call, company CEO Eric Yuan emphasized on its strong customer metrics. In the last 12-month, the number of customers with an average contract value of over $100,000 rose 97% year over year to 546.
The global focus on digital transformation will push the demand for collaboration tools higher. According to Research and Markets , the worldwide collaboration market is estimated to touch $48.1 billion in 2024, up from $31 billion in 2019, growing at an annual rate of 9.2%. This means Zoom Video is part of a growing addressable market, giving it enough opportunities to gain traction and achieve sustainable top-line growth.
Fiverr International (NYSE:FVRR) went public at $21 per share on June 13. While the stock rose 92% to touch a record high of $44.25 that day, it has pulled back significantly, giving investors an opportunity to buy the stock close to its IPO price.
Fiverr is part of the so-called gig economy, in which organizations hire temporary employees for short-term projects. Fiverr is an online marketplace that connects enterprises with freelancers. The number of active buyers accelerated for the third consecutive quarter as Fiverr continues to expand its service catalog across verticals such as gaming, politics, e-commerce, and architecture.
The company charges fees on transactions between enterprises and freelancers (or buyers and sellers), a business model similar to Upwork's. In its most recent quarter, ended in September, Fiverr managed to grow sales by 42% year over year.
Active buyers jumped 16% to 2.3 million in the third quarter, driven by strong trends in traffic and conversion. The company continues to invest heavily in automation tools and marketing to attract new buyers to its platform. In July this year, it also launched Fiverr Studios which allows freelance workers to collaborate on a project. The gigs from a collaborated team costs 7 times more than the average standard gig.
Fiverr has estimated revenue between $105.5 million and $106.5 million in 2019, a growth of about 40% year over year. Like most recent tech IPOs, Fiverr is also posting an adjusted loss, which might make investors wary. However, Wall Street analysts expect the company to expand earnings at an annual rate of 44% between 2018 and 2023. This means Fiverr should be EBITDA positive by 2022.
The Israel-based company is banking on the exponential expected growth of the freelance marketplace. The volume of transactions on its platform is estimated to double from $204 billion in 2018 to $455.2 billion in 2023.
Fiverr is set to benefit from international expansion and the growth in its buyer base as well as an increase in buyer spending, making it a compelling stock to consider for growth investors.