Question

Select an IPO that occurred in the last five years and research it using credible financial publications (e.g., Bloomberg, The Financial Times, The Wall Street Journal, The Economist). Referring to your research and analysis of the company’s financial statements prior to the IPO (found via the SEC EDGAR Company Filings), determine whether you think the IPO was a success. In your post, address the following questions with appropriate support for your answers:

Did the company value the IPO correctly?

Was the company able to generate additional value for shareholders via the IPO?

What economic and market factors potentially influenced the results of the IPO?

Do you think the IPO was a success based on your analysis?

Answer 1

When company decides to go public , it is referred to as an IPO i.e Initial Public Offering. It is a great way for companies to expand their business and raise capital.

Advantages of an IPO include strengthening capital base , easier acquisitions, diversified ownership and increase in prestige. However it puts pressure on short term growth, increases costs, imposes more restrictions on management and on trading, forces disclosure to the public and makes former business owners lose control on decision making.

Fitbit Inc is a pioneering developer of wearable fitness-tracking devices. They began operations in 2007 and the brand quickly became synonymous with fitness tracking. Fitbit device crossed the 1 million mark in 2012 as momentum continued building across the market.

In June 2015, Fitbit's IPO raised around $732 Million for the company and some of its shareholders by selling 36.6 million shares, and gave the San Francisco based company a valuation of about $4.1 Billion. It was marked the third largest US IPO in 2015.

Fitbit sold 3.9 million devices during the first quarter of 2015, an increase of 129.4% over the same period in 2014. However, despite the furious growth in sales, Fitbit's market share fell by nearly one-fourth, from 44.7% in the first quarter of 2014 to 34.2% in 2015. Fitbit faced competition from all directions, including low- and mid-priced fitness wearables from companies such as Jawbone and Xiaomi, as well as offerings in the middle- and high-end fitness segments from sports and technology giants such as Nike, Garmin, Microsoft and Samsung.

In the second quarter of 2015, Fitbit sold 4.4 million units, up 158.8% from the previous year. While its market share was down by about one-fifth compared to the same period in 2014, Fitbit maintained its dominant position in the market. Apple entered the wearables market during the second quarter with its high-end, all-purpose watch that garnered a lot of excitement and sales but did not seem to disrupt Fitbit's fitness-focused segment of the market.

The following table shows a select data of Fitbit's figures prior to the IPO.

Particulars	2013	2014	2015
Sales (nos)	4.5 million	10.9 million
Revenue	$271.09 M	$745.43 M	$1.86B
Gross income	$60.21M	$357.65M	$901.06M
Net Income	($51.62M)	$131.78M	$175.68
EBITDA	$79.05M	$191.04M	$389.88M

Fitbit's IPO in June was met with excitement right out of the gate given the company's competitive position and fast sales growth in a booming market. After rising nearly 50% during the opening day of trading, the stock continued trending up until second-quarter 2015 earnings were reported on Aug 5, 2015. Despite announcing quarterly revenue of $400 million, far beyond analyst estimates of $319 million, Fitbit's share price tumbled, soon settling below the $40 mark. Concerns seemed to be linked to a rather small decline in gross margins from 52 to 47% as the company struggled to pump out 4.4 million devices to a hungry market.

Fitbit shares hovered below $40 during the third quarter of 2015. In November, the company announced another round of strong results, including sales of 4.7 million devices, an increase of 101.7% over its 2014 third-quarter results. Revenue was $409 million and gross margins were in line with second-quarter results. However, the company also announced plans for a secondary offering of 7 million shares, as well as additional sales by existing shareholders. The share price declined more than 8% after the news. Although the secondary offering was eventually amended to 3 million shares, investors were clearly worried about Fitbit's quick return to the markets for additional working capital.

Fitbit problems continued into the new year. On Jan. 5, 2016, Fitbit unveiled a new smartwatch product, called the Fitbit Blaze, which presumably would compete against the Apple Watch and other similar offerings. The Blaze was met with some skepticism from investors, and Fitbit's share price fell nearly 20% on the day. The hits kept coming. On Jan. 7, 2016, news emerged of a class action lawsuit against Fitbit claiming the company's devices are inaccurate, particularly in the monitoring of heart rate. The following week, doubts mounted further as to the viability of the Fitbit Blaze when William Power, a prominent analyst for R.W. Baird, lowered his price target for Fitbit from $54 to $30 based on concerns about the Blaze and other product developments. This precipitated a further slide for Fitbit to a level below its initial $20 offer price.

In 2017, things didn't pick up for Fitbit, with the company never managing to get its stock price above $10 for the entirety of the year. Fitbit's financial problems led to another drop in February of 2018 after the company's dismal its Q4 2017 results. The company sold 15.3 million devices in 2017, but it wasn't enough to turn the tide of bad news for the company. During Fitbit's earnings report, CEO James Park said that the company would spend 2018 trying to manage down expenses. A Citron Research report estimates that Fitbit shares will hit $15 this year, a 130% upside.

In conclusion, the success of an IPO depends on its trajectory journey of how well shares perform in the coming years and hence how beneficial it is to the shareholders. In the case of Fitbit, even though the IPO was a success initially their prices have soared to a low point due to the various economic and market factors such as competition and lawsuits as mentioned.