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Newcomers to share market investing searching the Internet for expert advice on how to pick winners and avoid losers can come up for air dazed and confused by conflicting views on what to do.  Investing in Initial Public Offerings (IPO) serves as a prime example.
On the one hand investors are bombarded with opinion pieces on “hot” IPOs coming soon and reviews of the best performers of the prior year.  Deloitte publishes an annual IPO Report, with the cryptic comment “Rising Tide” attached to the 2018 report and “Snakes and Ladders” to the 2017 report.
One could easily come away with the conclusion there is no clear conclusion when it comes to the issue of whether IPOs are worthy vehicles for retail investors.  Caveats abound, with venerable value investors like Warren Buffett advising “stay away” and others setting strict retail rules, such as never, never, never invest in an IPO with no history of revenue generation.
The hype is ever-present, with lofty claims of IPOs as a class of stocks outperforming stock indices such as the ASX 200 or the US S&P 500.  The following graph is an example, touting a decade of returns achieved by all IPOs over their first trading day and the end of the first and third month of trading.

From the website of investment advisory firm BESPOKE Investment Group, we find another graph, comparing price performance of an IPO index from respected financial company Bloomberg – the Bloomberg IPO Index – against the performance of the S&P 500 over a decade.

Investors ready to take the leap into an upcoming “hot” IPO can find sobering contrasts elsewhere on the Internet, this one from US based retail investment analysis website Seeking Alpha.

Much of what you will find on IPO performance is short-term in nature.  Note the performance claims from Dealogic and OnMarket Bookbuilds stops at three months.  The Bloomberg Index tracks IPO performance for 12 months.
Some market insiders are of the belief many IPOs begin to suffer as their first year of trading extends into the second and beyond.  This view is supported by research from influential global investment bank Goldman Sachs, appearing in a June of 2017 article on investmentmagazine.com.au.

How IPO performance is measured can add to the confusion. Much of what investors read about those spectacular gains are based on the issue price of the stock, not its opening trading price.  Companies electing to go public via a traditional IPO secure the services of an investment bank to manage the process. A prospectus outlining the details of the offering is published for investor review, including the issue price available to the investment community prior to the stock commencing trading on the exchange. The issue price is not fixed in stone, as pre-listing demand for the shares can lag, causing the company to lower its issue price. For IPOs in demand the trading price very often exceeds the issue price. The issue for retail investors here is that the issue price is most often available only to institutional and high net worth, or “sophisticated” investors.  The public cannot buy in until the stock starts trading.
In 2015 a new company entered the ASX investing community employing digital technology to disrupt the IPO world.  This Australian “fintech” company is OnMarket BookBuild, with a platform that allows ordinary Aussie retail investors to bid on select IPOs, currently about one third of all IPOs.
At the core, investing in an IPO is the same as investing in any ASX listed stock.  Does your target company produce something customers are now or will soon be buying in sufficient quantities to allow the company to make a profit and is that demand likely to grow in the future?
One of the unique challenges with IPO investing is the paucity and reliability of information about the company’s history and plans for the future.  Most ASX stocks that have been around are covered by analysts and frequent subjects of financial news coverage. They have a performance history an investor can review.  
Some have likened investing in an IPO to buying a used car.  The seller wants to get the highest price available and is the principal source of information about the car.  Companies choose to go public to raise funds for a variety of reasons and as such are looking to receive the highest price possible.  This is one of the key reasons the father of value investing, Benjamin Graham, advised against investing in IPOs.  
In addition to the pricing issue, the investor must rely on information provided in the IPO prospectus provided by the company, whose obvious interest is to put the best foot forward, within legal limits.  High profile IPOs are often the subject of commentary on financial and investing websites, however, investors unwilling to take the time to study the IPO Prospectus would be wise to adopt a “wait and see” posture towards the stock.
There are two IPOs now available on OnMarket of interest, due to their operations in high growth sectors.  
The explosion in digital technology has opened the door to businesses to learn more than ever dreamed possible about their customers’ preferences.  It’s called “Big Data” and is universally recognised as a technology megatrend.
A company born in Australia and now headquartered in New York – PINCHme.com Inc. – is poised to capitalise on that trend.  The company’s proprietary technology offers large scale branded businesses in the Fast-Moving Consumer Goods (“FMCG”) market a link to the PINCHme community of more than four million consumers, enabling them to better compete against Direct to Consumer (DTC) operations like Amazon and competing “white label” branded products available at retailers like Target.  The FMCG market is a high-volume low margin business sector offering low cost products with a very short sales cycle.  PINCHme attracts consumers with its offer of free samples and the opportunity to test new products.  The company uses market information provided by its FMCG customers to target consumers, receiving in exchange for the free samples valuable market research information. PINCHme requires consumers to complete product market research surveys and complete online ratings and reviews.
The company already has an impressive list of customers, among them Procter & Gamble; Johnson & Johnson; Purina; Kraft/Heinz; Nestles; PepsiCo; and Gerber. 
Market potential is substantial, with PINCHme estimating USD $225 Billion in annual FMCG marketing spending.  The company had revenues of $5.9 billion in FY2015; $9.1 billion in FY 2016; dropping to $7.9 billion in FY 2017.  The company is forecasting revenues of $10.4 billion for FY 2018.  Although gross profit has increased each year, operating expenses to fuel the company’s growth have kept the company from reporting its first net profit.  The issue price for PINCHme.com is $0.50.
The second IPO of interest available through the OnMarket platform is Nanoveu Limited. This is an Australia based high tech company with a bold goal – revolutionising the mobile gaming and entertainment industry.   The company recently incorporated following the acquisition of Singapore based Nanoveu PTE Ltd, a company that has been developing a product called EyeFly3D™ since 2012.  This award-winning product combines a software application with a hardware screen protector enabling photos and other images, videos, and games to be viewed on smartphones in 3D without special glasses.
The company has another product in development. EyeFyx, which will achieve the same ends for people with vision issues, with commercial introduction not expected for another two years.
Both LG and Sharp experimented with similar technologies in 2011 and 2012, with limited success attributed to the lack of original content in 3D.  A major advantage of the Nanoveu technology is the ability to render 2D content into 3D viewing.
Smartphone shipments are expected to peak at 1.87 billion units shipped annually in 2018 with a slight decline to 1.84 billion by 2020.  In 2009 annual shipments were 174 million units, a huge market opportunity given EyeFly3D™ is an add-on product. 
The company completed a test sales program, moving 52,000 units for iPhone models 4 and 5 in electronic goods stores in the US and a website, grossing $675,000 in revenue.  The company has wholly own distributors in the US, Singapore, and Taiwan, with third-party distributors in an additional six countries – Indonesia, India, South Africa, the Philippines, Viet Nam, and Bahrain.
Given there are already around 2.6 billion smartphones on the planet with approximately an additional 1.8 billion coming on annually, Nanoveu classifies as an IPO with a “great story” to tell, causing some investors to treat the high-risk with this company lightly.
First, 3D technology televisions were all the rage a few years back but fizzled.  Nanoveu’s EyeFly3D™ has the advantage of not being dependent on 3D generated content and the technology allows users to take videos in 3D.
Second, the technology originated with Singapore’s state-backed Agency for Science Technology Research (A*STAR), now licensed to Nanoveu.  
Third, the company has no history of revenue generation beyond the test sales program and its distribution channels, including shops/kiosks in shopping malls in the US, are dependent on a distribution sector in decline.  
On the positive side, the price is low enough – USD $14.99 for a plastic screen protector and USD $18 for glass and low-cost software – that consumers once enthralled by the prospect of 3D may be willing to give EyeFly3D™ a try.  Nanoveu expects to sell 358,000 units in its first 12 months with a goal of three million by 2020.  Eighty percent of the proceeds from the IPO, with an issue price of $0.20, will go towards product development and marketing expenses.  EyeFly3D™ models for the iPhone 6 are in production with Android models expected in 2019.

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