| Flotation date | IPO price ($) | Change in shares after flotation | |||||
| 1 week | 1 month | 3 months | 1 year | 3 years | To date | ||
7-Nov-13 | 26.00 | 71.9% | 72.9% | 109.0% | 55.0% | (29.2%) | 13.6% | |
Snap | 2-Mar-17 | 17.00 | 33.6% | 32.5% | 24.1% | 5.9% |
| (14.8%) |
Dropbox | 23-Mar-18 | 21.00 | 48.8% |
|
|
|
| 48.7% |
Average |
|
| 51.4% | 52.7% | 66.6% | 30.5% |
| 15.8% |
|
|
|
|
|
|
|
|
|
Spotify* | 3-Apr-18 | 132.00 | 17.3% |
|
|
|
| 17.3% |
Source: Thomson Reuters Datastream
* Spotify did not set an IPO price. This is based on the so-called initial reference price of $132 a share.
“Despite an encouraging start, Spotify therefore has a long way to go before it fully wins over investors, especially as Snap now trades below its flotation price and Twitter was under water until as recently as this February, more than four years after its initial public offering.
“Twitter, Snap and Dropbox have all yet to prove that they can consistently generate profits and cash (or even do so at all) and Spotify is in the same boat, as the Swedish music streaming service provider is still in loss even after 12 years in existence and despite its ability to generate €4 billion in sales last year.
“As such none of the quartet necessarily pass muster when it comes to investment legend Benjamin Graham’s pithy assertion that ‘Operations for profit should be based not on optimism but arithmetic.’
“For the moment, these stocks are riding public optimism that they will make a profit one day, or at least provide them with share price gains. This is understandable given the returns offered by investing in Amazon, Netflix, Alphabet and Netflix, which have been truly stunning.
| Flotation date | IPO price ($) | Change in shares after flotation | |||||
| 1 week | 1 year | 3 years | 5 years | 10 years | To date | ||
Amazon* | 15-May-97 | 1.50 | (6.9%) | 398% | 4779% | 918% | 4240% | 95648% |
Netflix ** | 23-May-02 | 1.07 | 0.0% | 47.5% | 107% | 177% | 901% | 27721% |
Alphabet*** | 19-Aug-04 | 42.54 | 26.9% | 229% | 488% | 343% | 1006% | 2325% |
Tesla | 29-Jun-10 | 17.00 | 12.9% | 66.4% | 532% | 997% |
| 1692% |
18-May-12 | 38.00 | (16.0%) | (30.9%) | 294% | 286% |
| 334% | |
Average |
|
| 3.4% | 142% | 1240% | 544% | 2049% | 25544% |
Source: Thomson Reuters Datastream
*Amazon IPOd at $16 but the stock split in June 1998 (2-for-1), January 1999 (3-for-1) and September 1999 (3-for-1)
**Netflix IPOd at $15 but the stock split in February 2004 (2-for-1) and July 2015 (7-for-1)
*** Alphabet IPOd at $85 but the stock split 1,998 for 1,000 in April 2014. The company changed its name from Google to Alphabet in October 2015.
“Even here, however, there are enough warning signs to remind investors not to take big gains from Spotify as a certainty going forward.
Amazon was clobbered during the broader equity bear market of 2000-2002 as sentiment turned against tech stocks and loss-making start-ups and favoured stodgier, cash-rich, more defensive names instead
Facebook shares traded below their offering price for well over a year before they finally gained some traction
Tesla has seen some wild share price movements, down as well as up and investors have needed steely nerves to sit out the volatility and maximise returns from the shares, which have come under fresh pressure of late, after 2017’s heavy losses, equally hefty cash burn and the company’s marked failure to stick to its Model 3 production schedule.
“Amazon has begun to generate profits and cash flow more consistently, although there is still work to be done. An annual operating profit of $4.1 billion represented a year-on-year drop in 2017 as the operating margin dipped from 3.1% to 2.3%.
“Moreover, Amazon’s total, aggregate operating profit since its 1997 float is just $16 billion (and free cash flow is barely $14 billion), a figure which offers only scanty support to a market capitalisation of around $700 billion, although bulls will argue that Amazon would make a lot more profit if boss Jeff Bezos chose to let it, rather than keep investing for the future.
Source: Amazon accounts
“Alphabet and Facebook are wildly profitable, Netflix is getting there (although cash burn remains an issue) and Tesla racked up its biggest-ever annual loss in 2017. With analysts expecting even more red ink in 2018 from Elon Musk’s brainchild, that may explain why Tesla’s shares have had the roughest ride this year, to again caution about what could happen to Spotify should broader stock market sentiment turn or the company fail to turn its 140-million-plus subscriber base into meaningful earnings.
“That said, Spotify management is clearly aware of the need to turn a profit and generate cash, given the joint launch with Hulu of a $12.99 monthly subscription plan that will give access to music and films.
“Snap and Twitter do not charge to use their service and they have yet to convince that they can monetise their user bases the benefit of either stakeholders or shareholders, so at least Spotify can point to how it differs from these two.”