How to Invest in ServiceTitan Pre-IPO

With the initial public offering (IPO) market showing signs of life again and tech stocks rebounding, many investors are wondering how to invest in ServiceTitan. ServiceTitan is a privately held company that provides cloud-based software for professional contractors.

The company confidentially filed to go public back in 2022 but scrapped those plans. As of this writing, it has yet to file for an IPO, but it's rumored to be considering doing so in 2024.

We'll break down what ServiceTitan does, the latest news on its IPO, and whether the company is profitable. Since it's not yet possible for most people to invest in ServiceTitan, we'll also cover some alternative stocks and exchange-traded funds (ETFs) to consider.

Is ServiceTitan publicly traded?

Is ServiceTitan publicly traded?

No, ServiceTitan is not publicly traded, meaning you can't buy shares in your brokerage account. You'll need to be an accredited investor to invest in the Los Angeles-based software start-up.

However, Reuters reports that ServiceTitan is eyeing a 2024 IPO. The company confidentially filed to go public in 2022 but pulled back due to poor IPO market conditions.

When will ServiceTitan IPO?

When will ServiceTitan IPO?

ServiceTitan hasn't announced plans to go public as of February 2024. So, it's not on the IPO calendar just yet.

It's reportedly considering an IPO in the first half of 2024 and is working with investment firms Goldman Sachs (GS 1.79%) and Morgan Stanley (MS 0.29%) to prepare for its stock market debut. Sources told Reuters, though, that ServiceTitan has yet to determine how much it plans to raise or the valuation it's seeking and that the company's plans could change depending on stock market conditions.

How to buy

How to buy ServiceTitan stock

It isn't possible to buy shares of private companies like ServiceTitan unless you're an accredited investor. To qualify, you need to have a high income, a high net worth, or hold a securities license. If you're an accredited investor, you may be able to buy shares of ServiceTitan and other private companies through a platform like Equity Bee or Forge Global.

Most investors will need to wait until the company IPOs before they can buy shares, though. If ServiceTitan goes public, here's how you can acquire shares once they're traded on a stock exchange. Note that you can follow the same process to buy shares of any publicly traded company.

Step 1: Open a brokerage account

You can open a brokerage account online in just a few minutes. Once you've chosen a financial institution, you'll need to decide the type of account you want. An individual retirement account (IRA) is a good option for money you don't plan to touch until you're at least 59 1/2. But if there's a good chance you'll withdraw your money earlier, a taxable investment account is often the better choice.

In choosing a brokerage, you may also want to find out whether your firm allows retail investors to buy IPO stocks if you're hoping to get in on the initial offering. The rules vary by brokerage, but many offer at least some IPO access.

Step 2: Figure out your budget

If you're a new investor, you'll need to figure out how much you can afford to invest and how much you want to allocate to any individual stock. Having a diversified portfolio is essential when you invest, so you don't want too much of your investment budget going toward any single stock.

The Motley Fool recommends building a portfolio of at least 25 stocks. If you don't want to handpick 25 individual stocks, you can make index funds the backbone of your portfolio and then add on individual stocks you believe have the power to deliver market-beating returns based on your research.

Step 3: Do your research

Before you invest in stocks, doing your research is vital. Make sure you understand whether the company is profitable (or has a viable path to profitability), how it makes money, and who its competitors are. Although it's impossible for most people to buy ServiceTitan shares as of this writing, investors can consider the following three stocks to capitalize on some of the same themes.

• Salesforce (CRM 0.42%) is the dominant player in cloud-based business software. It's the world's leading provider of customer relationship management (CRM) tools, with 22.1% of the market share. Salesforce's top customers can be found across virtually every industry and include giants like Amazon (AMZN 3.43%), Walmart (WMT -0.08%), U.S. Bank (USB 0.32%), American Express (AXP -0.62%), and BMW (BMWYY 0.95%). ServiceTitan focuses on trades and tends to count small businesses as clients. Still, Salesforce's Field Service platform provides many of the same services as ServiceTitan. Salesforce share prices finished out 2023 up 98%, compared to 24% for the S&P 500 index.
• The Home Depot (HD 0.94%) is a massive home improvement retailer focused heavily on growing its professional contractor business (which includes many of the same customers who likely use ServiceTitan's products). While pros only account for 10% of Home Depot customers, they account for 50% of its overall sales. Home Depot is also a top dividend stock, paying quarterly dividends to shareholders for almost 37 consecutive years.

• Builders First Source (BLDR 1.29%) is another company with a customer base similar to ServiceTitan's. The Texas-based company is the largest supplier of building products and prefabricated components for residential construction, repair, and renovation products in the U.S., operating in 42 states and 86 of the top metropolitan statistical areas. The under-the-radar stock had delivered five-year returns of around 1,250% as of mid-February 2024. In December 2023, it joined the S&P 500 index.

4. Place your order

After you've opened and funded your account, made a budget, done your homework, and selected the stocks you want, you'll need to place your order. Doing so is pretty simple: You'll enter the ticker of the stock you're buying, along with the number of shares you want to buy, into your brokerage's platform.

You'll also need to decide whether to place a market order or a limit order. A market order tells your broker to buy the stock immediately at any price; a limit order directs your broker to execute the order at a specific price threshold. The Motley Fool recommends using market orders and only buying stocks you plan to buy and hold for the long haul.

Profitability

Is ServiceTitan profitable?

As a privately held company, ServiceTitan isn't required to publicly file financial disclosures with the U.S. Securities and Exchange Commission. However, according to Contrary Research, ServiceTitan is not yet profitable despite raising more than $1 billion in funding.

Most recently, the company raised $200 million in June 2021 in a Series G funding round led by private equity firm Thoma Bravo, which valued the software company at $9.5 billion. In 2022, a brutal year for tech companies and a shaky year for housing, the company burned through $170 million -- more than one-third of its revenue for the year.

Should I invest?

Should I invest in ServiceTitan?

Until ServiceTitan goes forward with its IPO, most people won't be able to invest in its stock. Even if the company does go public, the stock may or may not be a good fit for your portfolio, depending on your risk tolerance and investment goals. Following are some possible reasons to consider investing in ServiceTitan:

• You're familiar with ServiceTitan's products and believe they offer good value to customers.
• You believe the company's software can better serve the needs of trades professionals than its competition.
• You're bullish on the future of the construction and homebuilding industries.
• You already have a diversified portfolio and would allocate only a small portion of your investing budget to the stock.
• You aren't looking to make a quick profit and can afford to buy and hold the stock for the long term.

Here are some reasons you might want to avoid investing in the stock:

• You're concerned with the lack of profitability thus far.
• You're worried about a prolonged economic downturn since most home spending is discretionary.
• You don't have a clear sense of its competitive advantage.
• You're seeking investment income because dividends are rare in the world of young tech companies.
• You can't stomach volatility, which comes with the territory when you invest in IPO stocks.

ETFs with exposure to ServiceTitan

Because ServiceTitan isn't publicly traded yet, you won't find any ETFs offering direct exposure to the stock. You can, however, invest in an ETF with similar investment themes.

• SPDR S&P Homebuilders ETF (XHB 1.22%): This ETF invests in the homebuilders segment of the S&P Total Market Index. As of Dec. 31, 2023, it had 35 holdings, the largest of which were concentrated in building products (47.46%), homebuilding (33.17%), and home improvement retail (11.97%). The fund's expense ratio is 0.35%, which amounts to $35 on a $10,000 investment.
• Global X Cloud Computing ETF (CLOU 1.13%): If you're focused on increasing your exposure to cloud computing stocks, this ETF is one option. The fund tracks the Indxx Global Cloud Computing Index, which comprises companies that stand to benefit from the growth in cloud computing, such as software-as-a-service (SaaS) and product-as-a-service (PaaS) companies, data center real estate investment trusts (REITs), and cloud and edge computing infrastructure and hardware companies. As of Dec. 31, 2023, the ETF had 36 holdings and an expense ratio of 0.68%, which translates to $68 in fees for an investment of $10,000.
• Invesco QQQ ETF (QQQ 1.54%): A popular choice with investors seeking broad exposure to the tech sector is the Invesco QQQ, which tracks the performances of the 100 largest nonfinancial stocks on the Nasdaq exchange. Because the fund invests heavily in growth stocks, it's significantly outperformed the S&P 500 on a 10-year basis, but its declines are often steeper during a bear market. The fund's 0.2% expense ratio means you'd pay $20 in fees on a $10,000 investment.

Related investing topics

The bottom line on ServiceTitan

While it's impossible for most investors to buy shares of ServiceTitan, it's worth keeping an eye out for whether it files for an IPO in 2024. However, keep in mind that investing in IPO stocks is inherently risky.

The stock could be worth buying if you believe ServiceTitan's cloud-based software that caters to homebuilders and other professional contractors is a good product and that the company can grow its sales and become profitable over time. Nevertheless, if you're uncomfortable with price volatility or are seeking investment income, buying shares of more established companies or sticking to mutual funds and ETFs is a better move.

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