Sift through the tech IPO flops to find the next Amazon.com

Some big names in tech have floundered since listing. That may be a buying opportunity, says Matthew Lynn.

Ocado delivery
Ocado has had the last laugh

They are meant to be the most exciting companies in the world, disrupting whole industries, launching exciting new technologies, and minting fortunes for their founders and investors in the process. Yet over the course of the last year, a few of the highest-profile technology businesses from the app economy have listed their shares and, almost as soon as they have done so, they have sunk like a stone.

Tech stars fall to earth

The taxi apps are far from alone. Slack, a messaging platform for companies, is down to $24 after opening trading at $38. Over on this side of the Atlantic, a similar story is unfolding. By far the highest-profile tech initial public offering (IPO) of the last year was peer-to-peer lender Funding Circle. From an opening price of 440p, the price has dropped to 110p.

To plenty of their critics, that will simply be proof that these firms were always wildly overhyped. They were basically rubbish all along, it is just that it took a listing to expose that. But we have been here before.

Rewind to 2001, and lots of Wall Street analysts were arguing that a newly listed internet retailer was basically bankrupt and that it would certainly never make any decent profits. The share price dropped from $107 to $6 as the critics called time on a ridiculous discount-driven business model. The name of that company? Amazon. To take another example, soon after its IPO in 2008 the share price of Facebook halved. Wall Street was troubled by its purchase of another app that one had never heard of, didn't make any money, and was likely to be a permanent drain on resources. That acquisition? Instagram.

Something similar happened in the UK. For several years after its listing on the London market, the food-delivery start-up Ocado was among the most shorted stocks on the exchange. Its critics argued that it was nothing more than a glorified van business, that it was completely dependent on its relationship with Waitrose, and that it could never make any money in competition with the likes of Asda. Over 2011, the shares slumped from 220p to less than 60p. And now? The share price is above £13, and it is a secure member of the FTSE 100, while veteran retailer Marks & Spencer has just been dropped from the main index.Or take the internet fashion retailer Boohoo. Its share price halved soon after it listed. And now? It has gone from 40p to 270p and it would be a contender for the FTSE if it wasn't still listed on the Aim junior market.

Wild swings towards global dominance

And a few go bust. The short-sellers and the critics will sometimes be proved right. Many more will eventually do fantastically well. We can expect to see a lot more pressure on some of the huge companies that have floated this year on both sides of the Atlantic. We may well see their share prices sink a lot further. But for any patient investor that will be a buying opportunity. And in 20 years time, we will think it amusing anyone ever doubted Uber, Funding Circle or many others just as we think Amazon trading at $6, compared with its current $1,800, was the bargain of the century.

Recommended

Five online retail stocks to diversify your portfolio with
Share tips

Five online retail stocks to diversify your portfolio with

Professional investor Tancredi Cordero, founder and CEO of Kuros Associates, selects five of his favourite online retail stocks to buy now.
18 Jan 2021
Why investment forecasting is futile
Investment gurus

Why investment forecasting is futile

Every year events prove that forecasting is futile and 2020 was no exception, says Bill Miller, chairman and chief investment officer of Miller Value …
18 Jan 2021
Why investors should beware of India’s surging stockmarket
Emerging markets

Why investors should beware of India’s surging stockmarket

The BSE Sensex benchmark index has soared by 90% since March, largely driven by foreign investors. But India's bull market is very vulnerable.
15 Jan 2021
US stocks are obviously in a bubble. But is it a rational bubble?
US stockmarkets

US stocks are obviously in a bubble. But is it a rational bubble?

Everyone wants to know if the US stockmarket is in a bubble. But that is the wrong question, says Merryn Somerset Webb. Of course it’s a bubble. The r…
14 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021