TL;DR: Snap’s buzzy consumer IPO’s big opening day hasn’t translated into sustained gains for retail investors. In fact, every other 2017 tech IPO we are tracking to date has performed better relative to their respective first day closes.
In the wake of last week’s detailed Q1 2017 Global VC report, today we’ll relax and focus on a single chart. But don’t repine, it has lots of lines on it.
Our goal is to examine the post-IPO performance of every US-based technology IPO. But, before we do, we have to understand what day it is.
As I write this, the corporate world is heading into earnings season. That means that public companies who follow a calendar-centered quarterly schedule have concluded their first quarters and are prepping to release ensuing results to investors and observers alike.
More importantly, for our context, the technology companies that have gone public thus far this year are about to survive their very first earnings cycle as public firms. It’s a big moment, perhaps nearly as big as releasing an S-1 document on the path to an IPO.
Baby’s First Earnings
Why do we care about earnings at all? Earnings, with their inherent doses of new information, move the share price of reporting companies. Usually.
Sometimes, even a report that is directly in line with expectations can move a share price dramatically. And there are times the numbers look bad, and the share price goes up (fill in your favorite villain), or the numbers look good, and the share price falls (at one point or another, everyone else).
And why is a first earnings report an important milestone? It helps set a firm’s tone for future investor relations, and, of course, gives investors their initial taste of new data regarding the company’s actual results. (Here at Crunchbase News we will not play First Earnings Flub Bingo, but you can imagine what the squares would say.)
But there is a short interval between an IPO and its ensuing first earnings report in which a company just trades. Whatever its final S-1/A contained is what the market (officially) knows. So it’s an interesting interim driven by investor sentiment regarding a company’s prospects, and those same investors’ current read of other investors’ sentiment. The hype cycle, in other words.
On the cusp of earnings and with five IPOs this year that we have tracked, it’s an ideal moment to look at how these companies have performed to date during the current pre-earnings period.
Post-IPO Pre-First Earnings Results
Financial terminology being the refined artform it is, we can call this Post-IPO Pre-First Earnings data. The following chart, via Yahoo Finance, shows each 2017 US tech IPO’s performance, measured from their respective first day closes:
To prevent you from a minor headache, the blue line and shaded section show Snap’s post-first day performance as a public company. The rest of the lines are other recently-public companies: Purple is Mulesoft, green is Alteryx, Elevate Credit is light blue, and that little red check is Okta’s debut.
What can we learn from the chart? It tells us all but one company is currently down from its first day close. Or, put another way, 80 percent of 2017 tech IPOs here in the United States have not made any northward progress since their opening day. In fact, only 20 percent have managed an ascent of any size.
Critically, that hype doesn’t fully translate to success in today’s market. Alteryx—I bet you can’t spell that in your head without peeking—is up post-first day close. Meanwhile, Snap, the hottest IPO in some time, has struggled the most since its flotation.
The chart has a tax built into it. Companies that rose the most during their first day’s trading have the largest room to fall. Regardless, heading into earnings, that is the lay of the IPO land. Expect more excitement following each company’s data downloads.
We’ll do a similar look at 2017’s IPO crop after its done dishing on its Q1 results. In the next month or two, expect to see the above chart again with a bit more data.