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2 Newly Public Stocks That Belong on Your Watch List

By Jamie Louko – Sep 21, 2021 at 5:43AM

Key Points

  • Latch has found a niche market and dominated it, seeing vast adoption of its products by big-name customers.
  • Riskified has also seen strong adoption, and with its amazing value proposition to customers, it is not surprising.
  • While both of these companies are young and still have to prove themselves, the initial signs of success are there.

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These two companies are showing strong growth and adoption in a world with many companies going public through IPOs, SPACs, or direct listings.

In 2021, over 700 companies have gone public so far, and it can be hard to sift through them to find the best in the bunch. Plenty of new companies will likely fizzle out quickly, but a few have strong competitive advantages, adoption, and opportunity. Here are two companies that have recently gone public that I think could be wonderfully successful over the next 10 years. 

1. Latch

Latch (LTCH -3.71%) has created a smart lock system for large apartment complexes that combines hardware with software. With its smart access tools, tenants can enter and exit their apartments without needing a key, being able to do it from their phones. They can also let in whomever they need at any time, anywhere. 

Woman analyzing a stock graph while on the phone.

Image source: Getty Images.

For landlords, Latch's software is the key to success. Landlords can see when tenants enter and exit buildings and manage tenant access to specific areas, all without having to leave their office. Landlords can also restrict access to tenants who move out, which eliminates the hassle of changing locks or collecting keys. 

Latch's customers are large apartment complexes that own dozens of apartments, so once Latch's hardware is put into these complexes, it would be extremely hard for its customers to stop using it. This is likely why Latch has not lost a single customer since 2017. For any company to compete with Latch, it would have to develop long-lasting relationships with large apartment builders, which would be difficult because Latch already works with some of the biggest ones, including Brookfield, Avalon Bay, and Tishman Speyer. 

Working with those big names has unlocked incredible growth for the company. Second-quarter revenue grew 227% year over year to $9 million and quarterly total bookings increased over 100% year over year to $96 million. Bookings are important for Latch: When contracts get set up, apartment builders agree on using Latch's products before the apartment building is even made. The bookings represent the revenue that Latch is expected to get once the building is built, which can take up to two years. 

Latch's gross margin is not pretty today because it loses money on the locks, which is its major revenue source right now. As landlords continue paying the subscription fees for the software, however, software revenue is expected to become the primary revenue driver. With a software gross margin of 90%, the company's total gross margin will likely improve, which is already taking place. Total gross margin for the second quarter of 2021 reached 8.5% compared to -18% one year ago. 

With such a small revenue base, the company still has a lot to prove, but with little major competition in the apartment complex smart lock space, along with international and commercial expansion opportunities on the horizon, Latch has all of the keys it needs to be wildly successful.

2. Riskified

If you were an e-commerce merchant, would you worry about receiving fraudulent orders? Even when some online orders are legitimate, 10%-15% are declined due to potential fraud, representing lost revenue for e-commerce companies.

Riskified (RSKD -3.57%) uses AI and machine learning to identify which speculative orders are fraudulent and which ones are real -- providing its customers with revenue that could have been lost if they had denied orders due to fraud potential.

As Riskified gains more customers, its machine learning capabilities become more accurate, providing more benefit to the customer, which is already quite high: Riskified helped increase its 10 largest customers' revenue by 9% and decreased their costs by 39%.

What makes Riskified special is that if it's wrong in its assessment, it will cover the cost of the lost sale -- mitigating almost all of the risk for a retailer to use the service. This could be why Riskified has hundreds of customers, including three out of the top 10 largest internet retailers.

In the second quarter, Riskified grew its revenue 47% year over year to $56 million and its gross merchandise value 55% year over year to $21.5 billion. The company's gross margin is increasing, up from 53% in the second quarter of 2020 to nearly 60% in the second quarter of 2021.

While Riskified needs to continue to prove that its algorithms are effective, it is off to a strong start with over $21 billion in quarterly gross merchandise volume. The benefit it provides to its customers is incredible, and with the e-commerce market expected to grow from $4.3 trillion in 2020 to approximately $6.4 trillion by 2024, Riskified has the competitive advantages to potentially capitalize on this major tailwind.

Jamie Louko owns shares of Latch, Inc. The Motley Fool owns shares of and recommends Brookfield Asset Management and Latch, Inc. The Motley Fool recommends AvalonBay Communities and Brookfield Asset Management Inc. CL.A LV. The Motley Fool has a disclosure policy.

Stocks Mentioned

Latch Stock Quote
$0.70 (-3.71%) $0.03
Brookfield Asset Management Stock Quote
Brookfield Asset Management
$43.15 (-1.05%) $0.46
AvalonBay Communities Stock Quote
AvalonBay Communities
$169.58 (-0.01%) $0.02
Riskified Ltd. Stock Quote
Riskified Ltd.
$4.86 (-3.57%) $0.18

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

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