Beware the unicorn

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20 January 2017 | 0

While the mythical creatures do exist, there’s a strong vein of bombs too

According to a new report from online dashboard and analytics firm GeckoBoard, up to a third of tech companies are now trading below their initial public offering (IPO) value.

Big names
In a study of 100 tech IPOs, there are a few big names in there, not just some of the ‘also rans’.

Nutanix is down around 12%, but Twitter is down 49%, gaming company Zynga is down 66% and Groupon is down 84%!

While there are several that have bucked this trend, namely VMware (up 95%), LinkedIn (up 199%), Palo Alto Networks (up 337%) and ServiceNow (up a staggering 510%), a few of what might have been termed safe bets seemed not to have fared so well.

Security company FireEye is down 7%, but Hadoop specialist Hortonworks is down 20%, peer-to-peer ecommerce outfit Etsy is down 23%, while trendy hardware companies GoPro and Fitbit are down 55 and 61% respectively, and fancy headphone maker Skull Candy is down 64%!

“What ails the likes of Nutanix and Hortonworks is harder to diagnose, both being themselves disruptors in their respective markets”

While it is hard to draw overall conclusions about these various successes and failures, GeckoBoard makes some significant observations.

Funding
Its study found that funding does not equal success, as companies with the least amount of funding tended to see the largest median of increase in valuation, around 116%.

Also, the study found that going public too early, or too late, could jeopardise success. Companies that go public between six and 10 years old achieved the highest growth rates, averaging 95%.

So it would seem that the old adages remain pertinent: if it looks too good to be true, well then it most likely is.

Twitter is probably the case in point. Despite a massive user base and a cast of the great, the good, the famous and infamous (I’m looking at you Agent Orange), it has struggled to develop, establish a credible revenue model and meet the needs of users amid the clamour of other platforms.

However, what ails the likes of Nutanix and Hortonworks is harder to diagnose, both being themselves disruptors in their respective markets and arguably so because of their cutting-edge offerings in rapidly growing areas.

While the likes of GoPro, Skull Candy and FitBit have to suffer the vicissitudes of consumer markets, the former are relying on business technologies and so are competing in less volatile markets where their success is more measurable. The same could be said of FireEye.

Ray of hope
That VMware, Palo Alto Networks and ServiceNow are going stellar is the ray of hope for all, but in each case, careful management, steady development and ready markets have served them well.

The study also observes that on average, companies that had three or more founders have achieved the highest growth rates since IPO, averaging 105%. Again, notable exceptions are Groupon and Nutanix.

So, there we have it — while unicorns do exist, and can turn from the mythical to flesh and bone, or glass and steel as the current fashion goes, there seem just as many that can go back to being just a fantasy.

Snap what?
And all of this takes place in the context of the much anticipated SnapChat IPO. The parent of SnapChat, Snap, has filed for a $25 billion valuation for its IPO, exceeding previous tech IPOs of the likes of Facebook ($16 billion 2012), Twitter ($1.82 billion 2013) and Google ($1.6 billion 2004).

Many have expressed concerns for SnapChat, from revenue models, to scalability and its ability to develop at the pace demanded by users, while others have worried about the fact that such a potentially large IPO in a still recovering IPO market may actually work against others seeking more modest valuations.

Whatever happens with SnapChat, the GeckoBoard study shows that each case is unique and while there appear to be some guiding principles, that most ancient of pearl of wisdom applies as much as it ever did: caveat emptor.

 

 

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