Pinterest and Zoom IPOs: Here's how to avoid another Lyft disaster
It’s time for some quick, easy to understand investing tips before hotly anticipated iPOs Pinterest and Zoom start trading today.
Clearly, many folks that nibbled at ride-sharing player Lyft’s stock in the hours after its late March IPO could use helpful reminders on how to invest. Lyft’s stock has tanked 17% since going public on March 28. The stock’s offering price was $72, and the first trade on that eventful day was a shade over $87.
Investors have used the time since the IPO to dig back into the prospectus. They — along with many Wall Street analysts — have emerged from that data dive more concerned on when the money-losing outfit will turn profitable.
Some even believe Lyft overhyped its 39% market share in its prospectus. Two class action lawsuits were filed against Lyft in San Francisco on Wednesday claiming it overhyped its market share.
A Lyft spokeswoman didn’t return a request for comment on the lawsuits.
Here are three quick tips to be mindful of if you are assessing whether to get involved in Pinterest or Zoom.
Tip 1: Re-read the S-1
Otherwise known as the prospectus, the S-1 is the first document a soon-to-be public company shares with the world its financials and opportunities. Could it be a boring read? Yes. Could it be misread a few times amidst the specter of getting rich quickly on what appears to be the next Amazon? You bet.
But it’s a must read. And it’s a must read even after a company goes public as the market is trying to determine near-term fair value. Investors should be using the first few months on these newly minted public companies to search for overhype in the S-1, the type of overhype that will likely be pounded out of the stock come the first earnings report months later.
For example, look at this nonsense spewed by Pinterest in its S-1. “People use Pinterest to visualize what their future could look like and make their dreams a reality,” Pinterest says. Right. Or how about this, “Pinterest is not a pure media channel, nor is it a pure utility. It’s a media-rich utility that satisfies both emotional and functional needs by solving a widespread consumer problem that is unaddressed by many other platforms.”
Utility? My water and electric are utilities, things you need. One doesn’t need Pinterest at all.
Overhype.
Tip 2: Know the stats
Each company offers up key stats for investors to pay attention to every quarter. For social media companies, it tends to be the number of users on the platform and the average revenue per user (cleverly called, ARPU).
It will be important in the early going for newly minted public companies to grow their key metrics given their often outsized valuation. No growth or a leveling off should be met harshly by investors (see what has happened to Snap Inc.).
One important metric on Pinterest is average per user. It’s a mere 0.09 internationally according to its prospectus and a healthier $3.16 in the U.S. Pinterest has to not only show consistent growth in these metrics going forward, it has to find a way to grow ARPU overseas.
If not, the stock should be sent lower.
As for Zoom, it has to better diversify its customer base. About 30% of its 2019 revenue came from only 344 customers.
Tip 3: See innovation
Investors demand growth, all the time. That is especially the case with newly public companies — investors want to see responsible, high margin growth in new areas.
In analyzing Pinterest’s S-1, it’s unclear where it’s going on innovation. Is it hardware like Snap? Is it another brand? All of it’s unclear, which is a red flag for investors looking to play the name for the long-term.
To its credit, Zoom has fostered some early innovations beyond its core video conferencing platform. Earlier this year, it releases the Zoom Phone for its business customers.
Brian Sozzi is an editor-at-large at Yahoo Finance. Follow him on Twitter @BrianSozzi
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