Technology continues to rule the IPO market, with 36 of the 184 offerings this year coming from that sector. Because the rout in the stock market since Oct. 1 has caused indexes to tumble almost 20%, the valuations of tech IPOs have also been savaged; even the top-performing tech issue, Zscaler, lost a quarter of its value in just two weeks in November before recovering most of that ground.
The biggest tech IPOs in 2018 (by funds raised) largely haven't appreciated as much as some of the smaller issues which came to market. The top 10 are listed below in the order of their offering size; returns are calculated from each company's offering date:
The least shall be first
The smallest of the 10 largest tech IPOs is the one that's put up the best results. Elastic is a big-data firm that's powering the search connectivity behind some of the biggest names in various tech fields, including Match.com's Tinder, rideshare apps Uber and Lyft, and grocery delivery service Instacart. While it's lost a quarter of its value after peaking at almost $84 a share, Elastic has still outperformed the rest of the big 10, with a gain of almost 75%.
Ceridian HCM has turned in the second-best performance with a better than 45% return since going public. The self-described "human capital management" firm is another behind-the-scenes player which handles payroll for the top businesses in the gig economy. That's key because making funds available almost immediately for independent contractors is an important component in these types of businesses.
The biggest tech IPO, Chinese social e-commerce platform Pinduoduo, has gained only 12% after going public in late July, though it had ascended some 60% to a high of $30 a share during the year. Pinduoduo separates itself from rival e-commerce providers like JD.com by allowing shoppers to include their social media contacts as "shopping teams" to get a lower price on an item, creating a more interactive shopping experience.
On the outs
The worst performer of the bunch is the oddly named SolarWinds, which has nothing to do with renewable energy sources, but rather provides information-technology management software to firms like Accenture and Chevron. SolarWind's whole IPO process has been one of diminished expectations as it was originally supposed to go public at a range of $17 to $19 and raise some $756 million. But as the stock market fell in October, wiping out all the gains for the year, SolarWinds was forced to pull back on its ambitious plans.
The other big tech IPO that finds itself in negative territory is cloud storage leader Dropbox. Like much of the market, Dropbox has been buffeted by external worries, but by few that actually relate to its business. Other than reports that investors such as George Soros and hedge fund Jana Partners sold all their shares, the business remains sound. And it's a cash-generating operation, producing $329 million over the last 12 months. As a result, Dropbox -- unlike some other tech IPOs -- won't need to raise money soon from external sources.
Tech stocks tend to be more volatile than businesses in more-staid industries, and because the sector had a big run-up before the market meltdown, it's not unexpected that it will bear a large part of the pain.
That doesn't make the individual tech stocks that went public in 2018 a bad bet. But it suggests that investors should use caution as the sharp dips and rebounds we saw in December may become more common, sending these issues whipsawing to the whims of the market.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends JD.com and Match Group. The Motley Fool recommends Accenture, Bilibili, and DocuSign. The Motley Fool has a disclosure policy.