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Initial public offerings are slowing in 2016, after a robust 2015. One explanation is that the IPOs of 2015 haven’t performed all that well. This includes Fitbit (NYSE: FIT), which is down 50% since its IPO, as well as First Data Corp. (NYSE: FDC), which is off 20%.
During the first quarter of 2016, no tech companies went public. But a handful of private companies are still killing it. These companies will likely hold off on going public until the IPO market is on more sound footing.
Nonetheless, public market investors can profit from clues from the high-growth segments of the IPO market. Here are the top three companies to invest in as alternatives to their pre-IPO counterparts:
No. 1 Way to Play the Slowing IPO Market: General Motors (NYSE: GM)
Uber is the hottest private company right now. The average change in Uber’s valuation from the first mutual fund investment in 2014 is up 214%.
As of Uber’s latest capital raise, it was valued at over $60 billion, which is larger than the likes of General Motors, Ford Motor Co. (NYSE: F) and Honda Motor Co. (NYSE: HMC).
But General Motors isn’t just standing by; it has partnered up with Uber’s largest competitor, Lyft, to make a splash in the ride-sharing industry. General Motors announced a $500 million investment in Lyft earlier this year.
General Motors’ plans go beyond ride-sharing business. General Motors’ plans go beyond the ride-sharing business. It’s planning to work with Lyft to build driverless cars, which Lyft will then rent to consumers. The other beauty with General Motors is that it offers a hefty dividend yield and is already profitable, two things that Uber can’t match. General Motors offers a 5.2% dividend yield and trades at less than five times earnings.
No. 2 Way to Play the Slowing IPO Market: Adobe Systems (NASDAQ: ADBE)
Docusign’s valuation has risen 194% since the first mutual fund investment in 2012. That’s quite a move for a company that provides e-signature technology and digital management of documents.
Docusign’s last valuation put it at $3 billion; it’s a relatively small, under-the-radar company. Adobe is the big elephant in the room, with its e-sign services, and it has a $48 billion valuation.
Adobe brings in $5 billion a year in sales and has been in a turnaround of sorts. It is transitioning to a subscription model for its services to provide itself with more recurring and steady revenues.
In its most recent earnings release in March, Adobe reported that its annual recurring revenue for its digital media business had reached $4 billion. It believes its Creative Cloud business, which is the key driver of growth in its recurring revenues, can reach $8.3 billion by 2018.
No. 3 Way to Play the Slowing IPO Market: Staples (NASDAQ: SPLS)
WeWork is up 170% since its first mutual fund investment last year. Its latest valuation puts it as a $16 billion company. This workspace and co-working company has a hefty valuation for a company that basically connects entrepreneurs and remote workers with office space.
Nonetheless, it’s a big and relatively untapped market. But public investors who want to get in on the shared office space movement might this underrated play: office supply stores. That’s right, Staples is blazing the path here.
It’s an interesting concept for Staples: offering workspace as an easy way to get traffic to the stores. Staples is partnering with Workbar to outfit with workspace of up 2,500 to 3,500 in square feet for the project.
In the end, you don’t have to invest in IPOs to find hot and growing markets. Just find the fastest-growing private companies and invest in the public companies that can mirror their trajectory.
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