Rise and shine, it’s bacon time!
If you could only choose one — would you rather give up bacon...or sex?
Well, ten years ago, one Canadian bacon company, Maple Leaf Foods Inc., thought to include this question in a survey of 1,006 random Canadians. Why? Who knows. But the answer may surprise you.
A whopping 43% chose bacon over sex.
I love bacon...but wow.
Anyway, with that flooring fact out of the way, let’s see what’s cooking.
What’s on the menu?
Bacon fact #5: Better than sex? *check*
Number of the day: 111%
Discussion of the day: Are IPOs worth it?
Savory selections
Number of the day: 111%
As in, Snowflake (SNOW) shares surged more than 111% on Wednesday, its inaugural trading day — or initial public offering (IPO).
SNOW, a cloud-based data-warehousing startup, priced its shares at $120 ahead of the company’s NYSE debut. Safe to say the IPO was a resounding success, as shares closed the day at $253.93 — representing a $70.4 billion valuation.
Surely, the company’s founders and executives were thrilled, right?
Not so fast, said Snowflake CEO, Frank Slootman.
Hours after his company started trading, Slootman delivered a brilliant and humble quote to CNBC:
“A stock is worth exactly what somebody wants to pay for it. It’s like talking about the weather — it is what it is. Tomorrow’s another day, we’ll see what it brings.”
Wise words, Mr. Slootman. Twenty-four hours later, shares of SNOW dipped 10% to $227.54. But that’s not exactly surprising. IPOs are volatile by nature.
Discussion of the day: Are IPOs worth it?
For equity owners, absolutely. Founders, private investors, and executives can make a fortune when their company/investment goes public. They cash out while the public buys in.
For the typical investor, the answer isn’t as clear.
Obviously, there’s risk involved. But, then again, you can say that for any stock — from tech startups to mature consumer products conglomerates. Newly tradable companies have unique risks though. There’s less hard data and more sentimental speculation. One MarketWatch article advises against IPOs for that very reason — Why you should not buy IPOs.
The article points out that IPOs tend to plummet back to reality after initially spiking. It references several IPOs to illustrate this point, including Alibaba, Facebook, and Etsy. Each of these companies saw their shares immediately skyrocket right out of the gate, only to tumble back down.
Then again, it was written in 2015...and it hasn’t exactly aged well.
Alibaba (BABA)
Facebook (FB)
Etsy (ETSY)
Obviously, these companies’ share prices turned around. But that doesn’t mean every hyped-up startup has a success story.
Look at Uber.
Uber revolutionized the transportation industry, and you didn’t have to work in transportation to know that. It was apparent to everyone. The benefits were tangible: convenient, low-price rides (usually) from where you are to where you want to go. So, Uber had a lot of hype leading up to its IPO.
The company initially priced its shares at $45. Roughly 16 months later, it’s currently sitting around $37. While it’s been publically tradable, Uber’s shares have maxed out at $46 — but have traded as low as $22.
So, are IPOs worth it? There isn’t a universal answer. It’s subjective, every company is different.
It also depends on your investment strategy. Just as Alibaba, Facebook, and Etsy needed time to grow, Uber’s story is far from over. Companies with long-term promise can still weather the storm of early volatility.
So, if you’re going to invest in an IPO, it’s important to base your decision on ample due diligence — just as you would with any other investment. Here are three tips to ensure a particular IPO is a worthwhile investment.
Scour the Internet for objective research
It’s challenging to dig into a private company ahead of its IPO. Unlike public companies, private companies aren’t required to disclose detailed inner-workings of their operations. And they don’t have teams of equity research analysts tracking their every move. So, it’s hard to find objective and insightful analysis of a private company. There’s limited information available.
Read the prospectus
It’s not exactly a light read, but a company’s prospectus provides a lot of valuable information. For instance, the prospectus outlines the company’s expected uses for the new capital, its latest financial data, and potential risks and opportunities. However, keep in mind, the company writes the prospectus — not a vetted third party. So, it’s important to read it with a healthy dose of skepticism.
Hold off until the lock-up period ends
Company insiders are bound by a legal contract that prevents them from selling their shares for a predetermined amount of time (the “lock-up period”). If the insiders sell their shares at the conclusion of the lock-up period, it’s not exactly a good sign, which could drive the share price down. By waiting for the stock to stabilize, you could avoid some of the initial volatility of an IPO.
Savory selections
Today’s selections have a startup flair.
Meet Snowflake, one of the buzziest tech IPOs ever — In case you’re unfamiliar with SNOW and want to learn more.
Peloton's major rival Tonal just raised $110 million from athletes like Stephen Curry — Intelligent workout equipment is buzzing.
The Most Successful IPOs Have This One Thing In Common — This Forbes piece is pretty bullish on IPOs, but it’s helpful to hear both sides. The author makes a case for basing the potential success of an IPO on its first day of trading.
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Stay sizzlin’,
Carter Kilmann