Topic: Stock prices
Rovio’s IPO Ends the Day Flat with Opening Price (Sep 29, 2017)
Rovio, the Finnish company behind the Angry Birds franchise, held its IPO today, just a day after TV box and platform maker Roku, but saw very different results. Whereas Roku saw a massive jump in its stock price in its first day of trading, Rovio’s stock ended the day back where it started, having traded in a pretty narrow range all day. In the context of Roku’s IPO and expectations for Spotify’s, I’ve been asked a lot recently about the prospects for tech IPOs overall, and my response is always the same: it’s not really about the “climate” for tech IPOs (though that clearly matters), but about the performance of each company in its own right. In the case of these two companies, a quick glance might make you think Rovio was actually in better shape, profitable and growing whereas Roku is unprofitable and growing. But it’s all about the trajectory and ultimate potential when it comes to valuations, and while Roku seems to be in the midst of a clear transition which should lead to profits and revenue growth, Rovio continues to be very reliant on a single franchise, Angry Birds, and though it’s expanded the nature of gameplay in games released under that banner considerably, none of its recent game launches have come close to matching the performance of the top games globally over the last couple of years. So Rovio is a mid-tier mobile game maker with some profits and growth but there’s no great success story here, nor any sign of a dramatic positive change in its fortunes. Spotify, on the other hand, is like Roku currently unprofitable, but there is at least a theory as to how it might eventually turn that around with enough growth in paid streaming, off the back of recently renegotiated record deals.
Roku IPO Sees Stock Rise Over 50% on First Day (Sep 28, 2017)
Roku went public on the NASDAQ today after filing its S-1 earlier this month with the SEC, and saw its stock pop on its first day of trading, rising from its $14 opening price to as much as $23 in the middle of the day before falling a little, settling in at around $21 at the time I’m writing, about a half hour before markets close. That’s a great start for Roku, which was far from a shoo-in as a consumer tech IPO given its big business model pivot, its losses, and the fact that it competes against three of the biggest names in consumer tech in Amazon, Apple, and Google. Other big consumer tech IPOs this year haven’t fared well, notably Snap Inc’s, but the main reasons for the poor stock performance have been grounded in poor company performance, so we’ll have to see how Roku fares in its first couple of quarterly reports, with the first one likely coming a month or so from now. To commemorate the Roku IPO, I added a Roku deck to the Jackdaw Research Quarterly Decks subscription service today, and will be recording a video voiceover for the deck shortly (a discount is available for those who buy both subscriptions, so contact me if you’d like the discount code for that).
I said in commenting on last week’s Reuters story about Sprint and T-Mobile merging that the one element that didn’t ring true was SoftBank ending up with 40-50% of the combined entity, and Bloomberg is now reporting that majority owner SoftBank is willing to accept something close to its current market price for Sprint, leaving it with closer to 30%, which feels much more in line with what I would have expected. It’s not a great exit for SoftBank, which bought 72% of Sprint for $7.65 a share in July 2013, while shares are trading at $7.83 at the time I’m writing this, having dropped 8% during the day so far, presumably on the back of this news about valuations. However, the stock had traded as low as $2.66 early last year, so SoftBank is at least poised to get about what it paid for Sprint in return for a decent minority share in what could be a much more promising company once the integration goes ahead. Sprint’s valuation, of course, has been bid up significantly over the past year partly off the back of its own improving business but in large part also because a deal with T-Mobile has seemed more likely since last fall’s US presidential election. Its price rose from around six dollars to over nine in the period immediately following that election, so the drop today is likely a reflection of the fact that expectations for a premium are dissipating.
This Financial Times piece seems like as good a hook as any to round up the week’s Apple news and to talk about perceptions of weak demand for the iPhone 8. The FT points out that Apple’s stock has had its worst week in 17 months, falling over 5%, as a result of some mixed reviews of its new products and perceived weak demand for new iPhones. As I said earlier in the week, the Apple Watch LTE reviews were particularly problematic, but I think much of the rest of the worry this week is overblown. It has been clear that overall demand for the iPhone 8 during the preorder period and in today’s first day on sale has been a little weak, but it’s also been clear that Apple has still sold out its first week or two of preorder inventory and that there were still lines in major stores despite the years-long decline in retail sales on the first day given the success of online pre-sales. From a financial perspective, all that really matters is that Apple sells a few more iPhones in the first ten days or so than it did last year, and that it has a strong December quarter, which will combine ongoing sales of the iPhone 8 line and the iPhone X line from about a month into the quarter onwards. It certainly seems to be the case that iPhone X interest has dampened early iPhone 8 sales somewhat, but as long as Apple has the X in decent supply in November and December, that needn’t be a problem, and it’s certainly not the case that the iPhone 8 isn’t selling at all. As such, I think Apple will be fine even if overall demand for the 8 line isn’t as strong as for the 7 line last year, but the big wrinkle will be supply of iPhone X models. If those are very constrained throughout the December quarter, that will be a bit more problematic.
via Financial Times
Snap Inc Share Price Falls Below IPO Price for First Time (Jul 10, 2017)
Tesla is now worth more than Ford after delivering a record number of cars for the quarter – Recode (Apr 3, 2017)
There are two things here: firstly, Tesla’s Q1 delivery number, and secondly what’s happened to its share price since it was announced. Stock valuations are interesting, but far from definitive as indications of what companies are worth or who’s “winning” in any meaningful sense. Tesla’s stock price is all about trajectory, and an unusual (perhaps even unwarranted) amount of investor confidence and enthusiasm that the company which is currently very small and unprofitable compared to its legacy peers will quickly catch up on both fronts. That, in turn, requires believing in Tesla’s manufacturing projections, which require a massive increase in its growth rate, from 56% annual growth in the past year to something much faster to hit its 500k target for 2018, which would be a six-fold increase over its 2016 numbers. Long-term, it seems very likely Tesla will reach that kind of scale, but given its track record, there’s every reason to believe it will hit this and other related targets later than it has projected. On that basis, then, the valuation seems that much less justifiable on the basis of any near-to-medium-term results.
Snap’s shares pop after $3.4 billion IPO – Reuters (Mar 2, 2017)
Snap’s IPO was widely expected to come today, and it ended up being a great debut for the stock, which rose 44% by the time the market closed, though it’s lost a little since and seems to be fairly volatile. As I’ve argued, the IPO itself comes at an extremely risky time for Snap and its investors, because there has been slowing growth but not enough time to see whether that growth will rebound, making future growth uncertain. The pop today wasn’t a surprise – the market has been so hungry for a major tech IPO for such a long time, and Snapchat is such a hot property, that retail investors chasing the next big thing were always going to jump in in a big way. At this point, Snapchat’s growth could still recover and it could go on to become one of the big success stories of the 2010s, or it could become another Twitter – there’s really no way to know at this point.
I’ll keep this brief – as I’ve argued previously, what happens with stock prices (and purchases of stocks) is at best a secondary indicator of what’s going on with a company, and at worst an entirely separate game that’s more about confidence in a stock than the company itself. Warren Buffett and Berkshire Hathaway are slightly different animals though – he’s notoriously conservative and long-term in his thinking about his investments, and only recently made his first tech investment in IBM, which is about as blue chip as they come. So the fact that he’s added Apple to his holdings and then doubled his stake recently is worth noting for the fact that even someone as conservative as him sees a long time upside in owning Apple stock. More interestingly, he’s invested on the basis of seeing how real people feel about the Apple products they own, which Apple itself also argues is one of the most important metrics you can look at when it comes to predicting its future.
I’m tying this story to the Apple is Doomed narrative because it would be easy to see today’s news as evidence that investors don’t think Apple is doomed at all. But if you take that approach, you’d also have to say that investors did think Apple was doomed nine months ago when its stock price fell to two thirds its level at today’s close, when in reality that movement tells you a lot more about investor skittishness than Apple’s actual prospects. Apple continues to be massively undervalued relative to major peers, and that reflects an ongoing skepticism that Apple’s ability to sell massive numbers of devices is about more than just smoke and mirrors. Apple is the exception in the consumer electronics market, which is otherwise characterized by low single digit margins at best, and I always suspect that some financial analysts think this is the result of some kind of sleight of hand that will eventually be exposed – there’s really no other explanation for the ongoing under-valuation. The massive swings in Apple’s stock price over time – its 12 month range goes from $89 to the $133 it hit today – are much more about investor skittishness than underlying performance. Certainly there was nothing in Apple’s last earnings that should have triggered such a significant change in sentiment – they were decent results, but guidance for the next quarter wasn’t great, and as usual there was nothing concrete about the company’s longer-term trajectory from management. I continue to be very bullish on Apple in general, but I certainly don’t base that conclusion on what’s going on with the company’s stock price.