Pinterest and Zoom made their stock market debuts Thursday, with eager investors lifting both closely watched tech unicorns well above their IPO pricing.
Pinterest, an image-sharing site, closed at $24.40, up 28 percent from its $19 pricing. But Zoom, a cloud-based videoconferencing company with significantly less name recognition, popped even bigger. It closed its first day of trading at $62, exceeding its initial $36 price by 72 percent.
Their performances are being closely tracked, analysts say, as possible test cases for a host of other highflying tech IPOs this year.
Last week, when Pinterest released a lower-than-expected IPO price, analysts speculated the company was adopting a more conservative approach to avoid replicating Lyft’s disappointing debut. After launching at $72 a share in late March, the ride-hailing company plummeted 12 percent on its second day of trading. It has been flailing since, closing at $58.36 on Thursday. This week, Bloomberg reported, investors filed two class-action lawsuits alleging that the company overstated its market position when it went public.
What is a unicorn IPO?
Pinterest and Zoom are the latest unicorns — start-ups with at least a $1 billion valuation — to graduate from private financing. But analysts have questioned whether the current crop of name-brand tech companies can sustain their massive valuations, given their easy access to private capital in recent years and unproven business models.
Pinterest says more than 250 million users flock to its site each month to collect images and “pin” them onto boards. It took in about $755 million in advertising-based revenue last year but is not profitable, though it did narrow losses by 51 percent and boost sales 60 percent from 2017 to 2018. It’s trading as PINS.
Several more tech unicorns have IPOs on deck this year, including Uber, Airbnb, WeWork and Palantir. In addition to uncertainty about continuing losses and unjustified valuations, investors will have to weigh broader and potentially worrisome trends in the industry. Tech companies worldwide are facing heightened scrutiny from regulators on issues tied to data privacy, competition and labor. Some experts fear an economic downturn is on the horizon.
But tech companies are teeing up to take advantage of a robust, highly liquid stock market. The time is ripe for investors in these private companies, whose early backers have waited years for the right conditions, to cash out. Some of the companies are so richly valued that they are too expensive for buyers on the private markets.
What is the next unicorn?
Ride-hailing service Uber Technologies is the biggest of them all, with an expected IPO valuation hovering near $100 billion.
“There’s a pent-up craze for these disrupters, an excitement that has been building for years,” said Kenny Polcari of ButcherJoseph Asset Management. “People have been watching these companies. They have seen them grow, used their services but haven’t been able to get in on the investing.”
Though Zoom’s communications service may not enjoy the same level of mainstream familiarity as Uber, Lyft or other Silicon Valley standouts, its IPO pricing of $36 a share put its valuation at more than $10 billion. Notable among tech unicorns, Zoom is already profitable. The company reported more than $330 million in revenue last year, more than doubling its 2017 sales. It posted more than $7.5 million of net income.
Zoom, trading on Nasdaq under the ZM symbol, surged nearly 80 percent Thursday morning and was trading near $65 at midday. Another company with a similar name appeared to benefit from the burst of IPO activity. Shares of Beijing-based Zoom Technologies doubled Thursday morning, CNBC reported, suggesting a possible mix-up by some investors.
Companies have been recalibrating their all-important initial stock price since Lyft’s embarrassing market fall.
“The ones who bought Lyft at $86 last week are now at $56 and not happy,” Polcari said. “The frenzy just sucked everybody in, and that’s where the individual investor needs to be careful.”
Pinterest and Zoom could serve as a “litmus test for Uber” when it goes public in May, said Nicole Tanenbaum, chief investment strategist at Chequers Financial Management. Their performance will “certainly be a reflection of public investor appetite following the Lyft IPO.”
Ali Mogharabi, an analyst with Morningstar, predicts Pinterest will achieve profitability in the next two years. Though the company does not pose much of a threat to advertising giants Facebook and Google, he said, there is room for Pinterest to grow. He estimates it will claim 1 to 2 percent of the digital ad market over the next five to 10 years.
Together, Facebook and Google are expected to take in 59 percent of digital ad revenue in the United States, according to 2019 forecasts from eMarketer. Third place Amazon is expected to earn 8.8 percent, followed by Microsoft at 3.8 percent.