Roku (ROKU), Snapchat parent Snap (SNAP) and Sogou (SOGO) are all 2017 IPOs, but with different chart action. Roku skyrocketed 70% last week on its first-ever quarterly report since coming public. Snap crashed on yet another disappointing quarter as it struggles vs. much-larger Facebook (FB). Sogou, a Chinese search engine from Sohu (SOHU), had a solid first two days after pricing at the high end of its IPO last week.
But you should use the same investing strategy for all three new stocks, and recent initial public offerings generally. Wait for a newly public company to prove itself by setting up in a proper base and breaking out.
Roku came public at $14 a share in late September, and on its second day of trading hit an intraday peak of 29.80. But then shares pulled back to 18.35 on Oct. 25. Shares closed at 18.84 last Wednesday.
But late Wednesday Roku reported an adjusted loss of just 10 cents a share as revenue swelled 40% to $124.8 million. Analysts expected a 28-cent loss on sales of $110.50 million. Growth in users and revenue per user was strong.
Shares shot up 55% to 29.19 on Thursday. Then on Friday, Roku leapt 13.9% to 33.25 in Friday’s stock market trading, clearing a 29.90 buy point.
Why not buy when Roku first came public, or right ahead of earnings. Anyone who did that would up a lot more than those that waited for Roku to hit 29.90 buy point. But investors had no way of knowing that the stock would ultimately rebound. If Roku had reported weak results or guidance, the stock could be trading at all-time lows.
The Snapchat operator shows the downside of buying early. Like Roku, Snap rallied for its first two days, then began retreating. Unlike Roku, Snap continued to fall as it has now reported three quarters of disappointing results. Late Tuesday, Snap fell well short of third-quarter revenue and user growth levels. Snap CEO Evan Spiegel, who earlier this year had laughed at the idea that Facebook was a serious threat, admitted that many people found the Snapchat “hard to use.”
Snap fell 14.6% on Wednesday, even with Chinese internet giant Tencent (TCEHY) taking a big stake. Snap closing the week at 12.76. While not a record low, shares are well below the IPO price of 17 and the all-time high of 29.44.
As for Facebook, the FANG stock is in buy range from a recent breakout. But the social media giant had a disastrous IPO start. After hitting 45 soon after trading opened in May 2012, shares closed that day right around the 38 IPO price. Facebook hit a record-low 17.55 in September, and didn’t set a new high until September 2013.
The Chinese search engine rival to Baidu (BIDU) priced its IPO at 13, the high end of its expected range. Shares rose to 13.50 in Thursday’s debut and then to 13.81 on Friday. That’s a solid start, but as Roku and Snap show, you have no real idea how Sogou will perform after just two days.
On the upside, Sogou is profitable and has shown accelerating revenue growth in recent quarters. Sohu is the main shareholder, but Tencent also has a big stake.
IPOs will go in different directions, but you should stick to the same path. Wait for the dust to settle and only consider investing when the stock presents a sound buying opportunity.