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3 Broken IPOs of 2019 Roaring Back to Life in 2020

By Rick Munarriz - Feb 9, 2020 at 12:00PM

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A ridesharing leader, teledentistry discounter, and Chinese dot-com are soaring this year after rocky market debuts last year.

Last year was a challenging year to go public. More than a third of the 2019 debutantes closed out the year below their IPO prices, including many of the more prolific companies. Some companies like WeWork didn't even get a chance to hit the market, stumbling on the way to the starting line. 

Things have been different for many of last year's laggards in 2020. Uber Technologies (UBER 0.71%)SmileDirectClub (SDC 6.79%), and Youdao (DAO -5.70%) are three stocks that closed out 2019 in the red, only to come through with scorching double-digit returns so far this year. Let's see why market sentiment has turned around for these three Wall Street newbies. 

An Uber driver in his car at night with an illuminated Uber icon on the windshield.

Image source: Uber Technologies.

Uber Technologies: Up 37% in 2020

Growth is starting to accelerate for the world's leading ridesharing service. Uber's revenue has gone from rising 14% in the second quarter of last year -- its first report after going public in the springtime of last year -- to 30% in the third quarter and 37% in last week's fourth-quarter report

The most impressive part of this story is that top-line growth is accelerating at the same time it's steering closer to profitability. Adjusted EBITDA for its flagship personal mobility service is booming, up 231% to 742 million in its latest quarter. Its faster-growing Uber Eats business continues to be a drag on its bottom line, but its take rate continues to improve on that front. Uber is going a lot of things right, and with 111 million monthly active platform consumers and growing, it's hard to see the stock shifting back into reverse.

SmileDirectClub: Up 66%

One of this year's biggest winners regardless of IPO class is SmileDirectClub. The company sells clear dental aligners at a steep discount to braces or aligners available through dentists and orthodontists. SmileDirectClub markets directly to consumers, using locally scanned impressions of teeth and remote dental pros to create the corrective aligners. 

The platform's popularity is booming, with revenue soaring 51% in SmileDirectClub's latest quarter. The excitement in 2020 has stemmed from the end of an exclusive supplier agreement that opens the door for SmileDirectClub to sell its products directly to the dental industry. Even if that doesn't work out, SmileDirectClub announced a distribution deal last month that will find it selling some of its growing number of dental products through the world's largest retail chain.

Youdao: Up 50%

When the Chinese intelligent-learning company hit the market at $17 as a NetEase (NTES 0.39%) spinoff four months ago, it seemed as if it was going to flunk out with investors. Youdao closed out the year in the mid-teens, but it's been moving sharply higher in 2020. 

Youdao's first quarterly report as a public company is encouraging. Revenue nearly doubled, up 98% to hit $48.4 million. Its adult paid enrollments are growing slowly, but its K-12 student base has nearly tripled over the past year. Add it all up, and gross billings for its online courses have more than doubled over the past year. There is growth across all three of its segments -- online courses, intelligent-learning device sales, and online marketing services -- and investors wanting to ride Youdao with slightly less volatility can buy into majority stakeholder NetEase. The controlling stakeholder hasn't generated the 50% pop that Youdao has, but it's still smoking the market in 2020 with its 11% ascent. Youdao is a small part of NetEase's business, but it does have a 67.6% stake in its spinoff. 

Investing in IPOs will always be risky. However, Uber, SmileDirectClub, and Youdao's early success in 2020 prove that it's not always the right decision to cut loose IPOs that stumble out of the gate. 

Rick Munarriz owns shares of SmileDirectClub. The Motley Fool owns shares of and recommends NetEase. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
$32.47 (0.71%) $0.23
SmileDirectClub, Inc. Stock Quote
SmileDirectClub, Inc.
$1.73 (6.79%) $0.11
Youdao, Inc. Stock Quote
Youdao, Inc.
$4.80 (-5.70%) $0.29
NetEase, Inc. Stock Quote
NetEase, Inc.
$91.88 (0.39%) $0.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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