If Roku Inc. is planning an initial public offering in the near future, as The Wall Street Journal reported on Thursday, July 13, it had better take care to price its shares modestly. The Journal said the maker of a popular TV streaming box may be close to filing for an IPO after hiring Morgan Stanley, Citigroup Inc. and Allen & Co. as underwriters.
The market for IPOs is plainly on edge following the less-than-impressive stock performances of Snap Inc. (SNAP) and Blue Apron Holdings Inc. (APRN) following their respective offerings, said Josef Schuster, founder of Chicago IPO investment firm IPOX Schuster LLC.
After going public on March 1 at $17 per share, Snap carried months of gold-digger hype to close two days later at $27.09. But in the ensuring weeks, Snap has slipped and slipped some more, trading on Friday, July 14, at $15.30 per share, 44% off its high. Blue Apron, meanwhile, has dropped 26% since its June 28 IPO at $10, trading Friday at $7.40.
Cloud storage company Tintri Inc. (TNTR) , meanwhile, cut its shares on offer and the share price and briefly delayed its IPO before debuting June 30. The stock is roughly flat, down 7 cents from the $7 IPO price.
Underwhelming support for Snap and Blue Apron has increased pressure on stock underwriters to check their hubris. Investors are anxious about getting burned.
"It's a buyers' market," Schuster said. "It's a very competitive pricing environment right now, which means that underwriters shouldn't be shooting for illusory valuations right now, which is really the fallout from Snap and Blue Apron."
The tough pricing environment could affect others potentially considering an IPO this year, a list that includes Airbnb Inc., online payment services provider Stripe Inc., job listing and review site Glassdoor Inc., team communications platform Slack Technologies Inc. and social news and entertainment site Buzzfeed Inc., according to a December look at the IPO pipeline from CB Insights.
Roku has yet to file for an offering that would make its financials open to general investors. The Los Gatos, Calif., company did not immediately respond to a request for comment.
Yet Roku has proven that its hardware for streaming video and music is very popular, having won a larger piece of the TV streaming market than makers of rival set-top boxes. Roku holds 27% of the streaming media player market, compared with 19% for Amazon (AMZN) Fire, 17% for Android TV, 16% for Apple (AAPL) TV and 14% for Alphabet Inc.'s (GOOGL) Chromecast, according to Fluent LLC, a data-based marketing company.
In addition, the IPO market hasn't been all bad. Carvana Co. (CVNA) , the Phoenix operator of an auto financing website, has surged more than 53% since going public on April 27. Initially, Carvana shares closed as low at $8.27 after an initial offering price of $15. But sentiment has steadily improved with the stock hitting $23.03 on Friday.
Roku also should be heartened by the performance of Altice USA Inc. (ATUS) , the U.S. arm of Dutch telecommunications company Altice NV formed after Altice closed on its $17.7 billion acquisition of Cablevision Systems Corp. last year. Since going public on June 21, Altice stock has gained $5.9% to $31.78.
While Roku is likely to gain interest from media and tech investors partial to its market share leadership, it will have to work extra hard to attract IPO investors, often those at hedge funds, whose shares in Snap and Blue Apron may still be underwater.
"What the market is lacking right now is the quality feedback-momentum trader, and these are typically the hedge funds," Schuster said. "These are people who made money in a previous IPO and want to get back in. That's what's missing right right now. It's just a tough environment to sell at any price."
Visit here for the latest business headlines.