Savvy investors know that keeping a watchlist is one of the most valuable strategies that can be employed, since it can be extremely frustrating -- and costly -- when investors find themselves with available capital but don't know where to put it. Likewise, maintaining a watchlist can help investors keep track of stocks which they'd like to add to their portfolios but are reluctant to because they seem too pricey.
One group of stocks worth keeping on a watchlist is those that have recently held their initial public offerings (IPOs). Oftentimes, stocks that debut on the public markets are volatile, and it can be an unsettling experience for investors, eager to invest early, to watch their investments swing up and down. Bearing this in mind, let's take a look at three stocks which recently held their IPOs and would make great additions to investors' watchlists: Chewy (NYSE:CHWY), Fiverr International (NYSE:FVRR), and Zoom Video Communications (NASDAQ:ZM).
Something to chew on
Founded in 2011, Chewy was acquired by PetSmart, a leading brick- and-mortar pet retailer, in 2017 and subsequently made its way to the public markets just before the dog days of summer, in June 2019. An online retailer that offers more than 2,000 brands to help pet parents provide for their furry friends' needs, Chewy caters to more than dogs and cats, offering products for birds, reptiles, and horses.
Investors familiar with the Pets.com fiasco may be reluctant to embrace an online pet retailer, but Chewy is far from a dog-and-pony show. Over the past five years, the company has grown its revenue from $204 million in 2014 to $4.85 billion -- a compound annual growth rate of 88.4%. And while the company is still unprofitable, its net loss narrowed from $338 million in 2017 to $252 million in 2019; in addition, Chewy achieved positive cash flow in 2019, reporting $47 million in cash from operations.
It's not only the income and cash flow statements where the company's growth is evident. Its active customers grew 27% year-over-year to 13.5 million customers in 2019, indicating that people are increasingly turning to its site for Fido's next chew toy. The company's growth in its autoship customer sales -- an important metric which indicates the stickiness of its brand -- is also encouraging. Whereas autoship sales in 2018 were $2.3 billion, or 65.7% of overall sales, in 2019, they represented $3.4 billion, or 69.4% of overall sales. With strong autoship sales, Chewy has clear insight into future revenues and can plan for growth projects accordingly.
Take five and take notice
Characterizing itself as a "global marketplace connecting freelancers and businesses for their digital services needs, Fiverr International provides an opportunity to invest in the gig economy.
In a recent letter to shareholders, Fiverr noted the challenges faced by small and medium businesses during the implementation of stay-at-home orders, and the pressure felt by workers in the gig economy. Although activity across Fiverr's platform declined 10%-15% in the third week of March compared to the previous week, the decline isn't ongoing.
Although these workers felt some pressure as small and medium businesses faced challenges during the implementation of stay-at-home orders -- something which Fiverr noted in a recent letter to shareholders as activity across its platform declined 10%-15% in the third week of March compared to the previous week -- the decline isn't ongoing.
Fiverr, for example, acknowledged an uptick in activity in the beginning of April. Granted, it's likely that as the nation -- and world -- works to overcome COVID-19, the gig economy doesn't immediately exhibit the same robustness as it had before the pandemic. But during these tumultuous times, Fiverr's strong balance sheet, featuring a net cash position of $124.7 million as of the end of 2019, should help it to endure.
While its stock may suffer from volatility in the coming months, investors with a long investing horizon would be well-served to keep an eye on it, as the company has proven adept at providing valued solutions to freelancers and businesses alike. For example, active buyers (users who ordered gigs on the platform) has grown steadily from 1.8 million in 2017 to 2.4 million in 2019, while the average spend per buyer grew consistently from $64 in 2012 to $170 in 2019.
Zoom in here
With people continuing to hunker down, Zoom has become a household name, enabling family members, friends, and businesses to keep the lines of communication open while seeing each other's faces. For many educators, Zoom has become an indispensable way of delivering instruction to students, while school districts and higher learning institutions implement remote learning plans.
While Zoom's stock recently felt some pressure with Facebook unveiling its own video-messaging service, Messenger Rooms, this is more likely an overreaction from the market than a sign that Zoom's business is poised to lose market share to the social network. For example, while Messenger Rooms can host up to 50 members, Zoom has a range of offerings which enable up to 1,000 participants at a time.
Raising $357 million in their April 2019 IPO, shares of Zoom have soared, climbing 156% from their IPO price of $36. And there's plenty of growth remaining for this stock as it targets expansion into international markets, which the company identified as "one of [its] key growth initiatives in FY21 and beyond" on its Q4 2020 conference call. Zooming in closer on the business, prospective investors should recognize the strength of the company's revenue generation from its subscription-based pricing model. In fiscal 2020, for example, management attributed the company's 88% year-over-year rise in revenue to a 63% increase in subscription services provided to existing customers, illustrating how once companies adopt Zoom's solutions, they're likely to keep coming back for more.
Keep your eyes on these IPOs
While there are plenty of businesses that falter after their IPOs, Chewy, Fiverr International, and Zoom are all companies which belong on the radars of growth-oriented investors. Granted, the effects of the global pandemic may contribute to some volatility in the near term, but, in time, these stocks should flourish, and investors would benefit from keeping a close eye on them.