Emerging Tech IPOs: A Different Route from SNAP’s
Snap Inc.’s major development was from Snapchat, a phone application that processes images which self-delete over a short span of time. The application was launched in 2011 as iOS only. However, it has diversified its market since then to include Android and Windows users as well. Additionally, the company has developed into a combination of private messaging, publications and even enabling users to share videos and thereby record live events. These are then streamed onto servers where other people can view them via their Snapchat accounts.
As such, Snap’s success has largely been due to its dependency on societal consumers. Individuals using the company’s media-sharing services have spurred its growth into one of the largest IPOs seen this year valued at $3.4 billion. However, the majority of public issuances scheduled this year from the technology sector are shifted towards a different audience: corporate clients. These companies sell their services to companies rather than individuals- providing them with valuable data and expertise in its manipulation. As such, the businesses can make more informed corporate decisions.
But why are these data analytics companies suddenly having a rise in their public issuances?
You might wonder why the firms would bother taking the risk involved with new releases yet the markets already have information-processing giants such as IBM and Oracle. The reason lies in increased investment towards these companies. Lately, investors have been more receptive towards taking chances in putting their money in data analytics firms despite most of them having high valuations. Another previous determent had been the fact that most of these enterprises are yet to break even.
However, rising demands in this sector signal that the firms will be in profit very soon. As such, most investors are not letting this chance for potential profit pass them by. Further, unlike companies such as Snap Inc. whose users may vary over time, firms dealing with information processing have recurring subscription models from their clients. As a result, it is easier to predict their profitability and forecast future generation of revenue.
Also, technology IPOs of this kind have been obtaining higher returns in the market. In recent calculations from trading floors, new releases of enterprise software firms received a 13 percent return on their investments over the past three months. This figure was compared to a 6.4 percent return for the Renaissance IPO ETF. The profits are also higher than those from the broader market, as Dow Jones Industrial Average and S&P 500 index have gained 9 percent less compared to software companies.
What are the new software enterprises on the market?
The release of these data analytics firms has included Talend SA that went public last year and MuleSoft Inc.(MULE) that went public on March 13th. MuleSoft’s stock soared by 43 percent in its first-day trading, showing just how much demand there was in the company’s stock. Alteryx Inc. (AYX) also had a nearly 11 percent rise in the company’s stock once it went public on March 23rd. Additionally, AppDynamics was set to go public early this year. However, CISCO Inc. took the chance and bought the startup hours before its release.
There are also other software firms whose releases are expected this year. These include Palantir Technologies Inc., valued at $20 billion as well as Dropbox Inc.