As we look back on 2017, there were 160 initial public offerings (IPOs) this year, up from 105 in 2016. While there were several successful IPOs over the last 12 months -- like Roku (ROKU) , which soared 133% -- most tend to leave a bitter taste in investors' mouths.
The Blue Apron (APRN) and Snap (SNAP) examples are still fresh in the market's memory. I've been critical of both companies and their shares over the last several months, so I will take a mini-victory lap of sorts on both, but as we've all learned let's not focus too much backslapping on what was. There is always another day to be had, when it comes to investing and managing a portfolio.
That requires looking ahead, something we try to focus on here with Stocks Under $10. As we do that, one area to examine is the IPO market in 2018. Even though we are a few days away from ringing in the new year, we are already hearing about companies that are lining up to become publicly traded entities in the coming year. One list formulated by MarketWatch suggests some likely 2018 IPO candidates include:
-- Docusign, a company that developed technology to manage digital documents and signatures;
-- Smartphone company Xiaomi;
-- Sports merchandise company Fanatics;
-- Streaming music service Spotify, which has filed with the Securities Exchange Commission for a direct listing instead of an IPO. With a direct listing, the company wouldn't raise any money and use no underwriters to sell the stock, which equates to a less expensive going public transaction that doesn't dilute existing shareholders;
-- Biotech company 23andMe;
-- Online storage company Dropbox.
Those are the likely candidates for IPOs. The MarketWatch article also shares some "long shots", like Pinterest and big data company Palantir Technologies, which is backed by Peter Thiel and the Central Intelligence Agency's venture capital arm called In-Q-Tel.
In the interest of full disclosure, I use both Spotify and Dropbox, and I have to say they are both great and worth every dime.
In reviewing that list of candidates and long shots, we find that three of them -- Spotify, Dropbox and Palantir -- are top five holdings at GSV Capital Corp. (GSVC) . The company describes itself as a publicly traded entity "giving growth equity investors access to the world's most dynamic, VC-backed private companies." In short, it's a public company that invests in private companies and looks to monetize its portfolio of holdings through either an IPO or other strategic exit such as an acquisition.
A full list of the company's top 10 investments can be found here, but if were to aggregate the investments, we would find that roughly 35% of its portfolio is centered on cloud computing and big data. This edges out its position in education technology and is followed by social mobility, marketplaces, and sustainability at roughly 18%, 11% and less than 1% of the total portfolio.
Exiting the third quarter, GSV's portfolio contained net assets of $209.4 million, or $9.69 per share, yet GSVC shares are trading at roughly $5.25 as I write this -- a steep discount. Part of the issues is that the company has been booking investment losses of late, due in part to positions in Snap and Chegg (CHGG) , which have booked modest realized gains. The company also saw its president resign in October. On the positive side, it has extended its share repurchase program and recently kicked off a tender offer for "any and all" of the $69 million in 5.25% Convertible Senior Notes due next year.
The key for GSVC shares will be the company's ability to successfully monetize its investments. As we saw in 2012, 2013 and this year, the shares tend to move in tandem with its more notable holdings, which included Action Alerts PLUS charity portfolio holding Facebook (FB) , Twitter TWTR and Snap. As we put GSVC shares into the Stocks Under $10 Bullpen, we'll look to revisit them as the 2018 IPO calendar firms.
This commentary was first sent to Stocks Under $10 subscribers at 09:30 on Dec 28.