The company I chose is Square. I believe Square offered and IPO to raise more cash for additional investments into new products and services. In 2015, privately held technology companies were al seeing a decrease valuations and Square in particular had a net loss of $154M in 2014. (Lederman, 2015) Given the overarching reduction in valuations and the net losses, Jack Dorsey (the CEO) had to IPO the company to bring in extra cash. In my opinion, Square would have been the best company to invest in for many reasons. First, Square held the lion’s share of the market for mobile friendly credit card payment processing – and as we all know – debit and credit cards are the primary payment methods (not much competition) for most consumers. In addition, Square at the time was offering an IPO $2-$3 per share less than the expected price. This raised the propensity for a rise in the value per share. I would have considered this a growth and value investment as it was underpriced and the company was expected to grow. I chose Xtera as a poor investment. Xtera was offering their IPO due to an expected net loss of about ~$5M in 2015. The company offers long range fiber solutions – and they are significantly less equipped and not nearly as established as the competitors (Alcatel-Lucent and Ciena). Xtera needed to raise cash to potentially enter new, more lucrative, markets to start turning a profit. (IPOCandy.com, 2015) As stated above, they are significantly less equipped and not nearly as established as the competitors (Alcatel-Lucent and Ciena). As a small supplier of fiber solutions, they simply cannot compete with larger competitors and they also cannot complete the large and complex infrastructure that many consuming businesses required.
IPO Investing is risky. According to Kaplan & Warren, (2016); “The first step taken by investors looking at a seed or early stage company is to estimate the company’s future value at the planned exit date of usually three to five years” (p. 217). After reading the Nasdaq article about the IPO market, the two companies I selected to research are loanDepot (LDI) as a bad investment and Instructure (INST). as a good investment. According to Renaissance Capital (2015), LDI was set to raise more capital than the other eight IPO’s combined during the week the report was generated. INST was fast growing and venture-backed Software-as-a-Service (SaaS) provider with a large sales backlog. Profit is several years out meaning that if the value picks up, the time to get out via merger or acquisition may lead to a good return on investment (p. 1). INST issued an IPO at this time to help it expand its investments in partnerships that offer horizontal integration and expansion into new products. I would be willing to invest in INST as the company seems to be on a growth path in pursuit of competing with Blackboard. The problem they are attempting to solve is providing an interactive space that links on line learning (distance learning) to the more interpersonal learning enjoyed at a university or business campus. As global markets open and companies and universities expand learning opportunities for traveling and remote workers, I suspect to see growth in this sector after significant investments in the various tools valued by the customers. Indeed, since 2015, INST has performed poorly in cash flow and operating income. Today the stock is over-valued, however, at the time of the IPO I likely would have invested in this company for these reasons. Competition is too high and the competitive advantage, for me, is not tangible. On October 09, 2015, LDI announced the filing of a registration statement Form S-1 with the U. S. Securities and Exchange Commission. The book-running managers for this IPO are well known banking institutions: Wells Fargo, Morgan Stanley, and Goldman, Sachs & Company (LoanDepot.com, 2018). Using Morningstar.com, there seems to be some good competition in the market for this company by established companies. Competitors are LendingTree.com, Ally Financial, and Santander Consumer USA Holdings, and Essent Group Ltd. (Morningstar.com website, 2018). Our reading indicates that LDI IPO stock price would range from 16-18 per share, with 30M shares issued. In reference, the competition is showing a fair value between $17.76 and $281 per share (Morningstar.com, 2018). Based on the competitive market, LoanDepot offers no tangible competitive advantage over Lending Tree or the others in the market space, and the IPO release value would likely fall below the offering price as a result.