Investing in initial public offerings (IPO) requires a lot of courage and patience. When companies go public, their stock can seem extraordinarily expensive relative to their past financials. But with their newly infused capital, they might just grow to heights previously unimaginable.
Today, let's look at why a dating app company, a do-it-yourself video game publishing company, and a healthcare tech company are among the best recently IPOed stocks to buy now. They are Bumble (BMBL -0.07%), Roblox (RBLX -1.75%), and Hims & Hers (HIMS 0.68%).
Bumble owns two dating apps, its namesake brand and Badoo. The former isn't too different from others in the category, but it has the added feature of only allowing women to message first after matches. Even though it appears insignificant, this added detail has attracted a loyal user base of singles who prefer more wholesome and safer starts to online relationships.
The latter of Bumble's brands focuses on establishing a social network for dating users. Together, Bumble and Badoo have over 40 million monthly active users, with 2.5 million paid subscribers. As with any dating app, Bumble is free to use and has a paid tier for subscribers who want the app's algorithm to make better matches.
Last year, Bumble's revenue increased by 11% year over year to $542.1 million. Meanwhile, its free cash flow fell by 50% from 2019 to $45.6 million. This was mainly due to one-time legal, accounting, consulting, and investor relations expenses related to its February IPO.
Right now, its stock is trading at 12.7 times sales, which is expensive for a moderate growth rate. However, the company does have a good product that is easily scalable, with a substantial international presence. The Bumble and Badoo apps are among the top five highest-grossing iOS lifestyle apps in over 30 countries. The company has definitely found its niche in the dating world. Interested tech investors should check out the stock as a long-term buy-and-hold option.
At 46 times revenue, Roblox seems like a ridiculously overvalued stock. However, the company has impressive results to back up its price. Roblox allows freelance video game designers and other entities to self-publish their content on its platform. Simultaneously its users can access the games on just about any device, including iOS, Android, PC, Mac, Xbox, and virtual reality gadgets like Oculus Rift.
The games are free to play. Roblox makes money when its users pay for in-game purchases or upgrades to their avatars with the company's virtual currency, Robux. By the end of 2020, Roblox had 32.6 million daily active users, which is an 85% increase over 2019. There are now more than 20 million games available on its platform.
The company generated $924 million in revenue last year, compared to $508.4 million in 2019. At the same time, Roblox improved its free cash flow by a stunning 2,736% year over year to $411.2 million. The increase is largely the result of the COVID-19 pandemic forcing people to stay at home and turn to video games for fun.
What I like most about Roblox is its ability to sustain its growth. The company is still wildly profitable, despite reinvesting 22% of its sales each year into improving its platform. It has ample opportunities ahead, rolling out new features (such as 3D spatial sound technology in games), reaching older demographics, expanding globally, and improving its monetization rates.
Over the past year, its number of daily paid active users grew 171% to 490,000. That is substantial but accounts for less than 2% of its overall user base. With so many ways to keep its growth going, this is surely a hot tech stock you don't want to miss out on.
3. Hims & Hers
Hims & Hers is unique in that it is looking to become the world's first vertically integrated digital healthcare company. It started out as a subscription-based business offering over-the-counter remedies for hair loss, skincare, anxiety and depression, acne, and more. It has since expanded into telehealth as well as telepharmacy.
The company charges as little as $39 per virtual visit, with appointment wait times of less than one hour. It also has its pharmacy ready to provide prescriptions to those enrolled in its enterprise health plans in 50 states. So far, Hims & Hers has a 94% customer satisfaction rating for the services it provides.
In 2020, the firm grew its subscribers by 64% annually to 312,000. Simultaneously, its sales improved by 80% year over year to $149 million. Back in Q1 2019, its gross margins amounted to just 41%. By the end of Q4 2020, that metric had risen to 77%.
This year, Hims & Hers expects to increase its sales by 34% to $200 million. Although paying 11.6 times sales for its stock is quite a premium, the company does have ways to sustain its growth going forward.
Looking ahead, Hims & Hers plans to expand its drug offerings to include sleep, fertility, diabetes, and other chronic conditions. The company also has the potential to scale its operations outside the U.S. Overall, this is a multidimensional healthcare/tech stock that you should keep a close eye on.