IPO Watch

Tech stocks Upwork and Elastic soar on US IPOs

This month saw two tech IPOs excel beyond all expectation in what has generally been a rough patch for tech companies, as Upwork [UPWK] and Elastic [ESTC] both experienced impressive value increases after floating. 

Dutch-based Elastic, which supplies search software to banks as well as apps like Tinder and Uber, closed its first day on the NYSE at $70, after opening at $36. This over-performance came after more conservative opening gambits of between $26-to-$29 apiece were planned on 24 September. Elastic’s market cap virtually doubled (95%) on the day to $4.9bn, while $252m was raised from shareholders. Its worth has since dipped slightly to $4.5bn, in keeping with the wider market slide, which has been led by tech. 

Upwork, a freelancer marketplace, also performed admirably on its first day, gaining 40% over an initial market cap of $1.870m. The American company initially went for $15 per share, above the expected $12-to-$14 range. It has now settled around the $20.5 mark, valuing the company at almost $2.2bn. 

Upwork says it connected 375,000 freelancers with almost half a million clients in 2017. Its successful IPO underpins the immediate and expected greater future growth of contractors within the labour market. Upwork’s S-1 filing cited research from McKinsey suggesting online freelance platforms could add around $2.7tn annually to the global GDP by 2025. Fiverr, another freelance platform in competition with Upwork, is reportedly going public next year with a £1bn valuation. 

Elastic meanwhile made $200m in sales and experienced 79% growth in the 12 months up to July 2018, exciting investors wishing to back the creators of the search tech behind some the world’s most popular services.

Tech-enabled diagnostics company Guardant Health [GH] was also up above 70% on its first day of trading on 3 October. The SoftBank backed health-tech company sells liquid biopsy tests that “map” out genomic results for advanced cancer tumours, helping practitioners match patients to the most appropriate treatment. Soon Guardant intends to be able to scan simple blood samples for early signs of cancer and cancer recurrences, potentially changing the way in which diseases are treated. 

These successful IPOs share a common thread that belies a desire among investors to bank on exciting players influencing areas that will be radically disrupted by tech, like healthcare and the way we work. 

The successes come however amongst a wider pullback in the IPO market, especially in tech, as companies opt to stay private for longer. The performance in the US also contrasts the dispiriting experience of Funding Circle [FCIF], the peer-to-peer lender whose first day of trading on the London Stock Exchange ended in relative acrimony as shares fell 24% from an initial 440p-per-share price point, with analysts suspecting an overly expensive initial pricing being to blame. The price has since pulled back slightly to the 396p mark. 

The USP of Funding Circle is that it acts like a bank with a pool of funds from its users, both individuals and firms, before allowing you to lend cash to vetted smaller companies. For this reason, it is seen as a potential usurper in the lending sector and it’s already massive in the UK, Germany, the US and the Netherlands. The company has lent over $5bn to 50,000 small businesses provided by 80,000 investors since its creation in August 2010, yet seems to have failed to excite investors in its own stock.

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