The Tilray Inc. (NASDAQ: TLRY) IPO was a massive winner in 2018, bringing investors peak gains of more than 500% between the IPO in July and today (Dec. 4, 2018). Now, investors are anxiously awaiting their chance to own Airbnb stock in hopes of similar returns.
The online lodging service just hired a new CFO on Nov. 26, a move that suggests the Airbnb IPO is imminent.
But should you use your hard-earned money to buy Airbnb stock in 2019?
It’s true there have been some big winners in the IPO market over the last year…
As we mentioned earlier, shares of Tilray Inc. opened at $17 on July 19, 2018, and are now trading for $102.45.
That’s a profit of 502%.
But there were also 10 other triple-digit winners in the past 12 months.
|Company||IPO Price||Current Price||Return %|
|Inspire Medical Systems||$16.00||$47.89||199.31%|
Of course, not every IPO leads to triple-digit returns…
Take biotech company Genprex Inc. (NASDAQ: GNPX) for example. Shares of GNPX opened at $5.00 on March 29, 2018.
However, shares are now trading at $1.39 per share, a loss of 72.20%.
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Shares of the online insurance marketplace, EverQuote Inc. (NASDAQ: EVER), have dropped 66% since June 28, 2018.
In fact, 49 companies went public in the last 12 months that have had their stock price drop by 26% or more, according to IPOScoop.com.
Will Airbnb be the next Tilray and provide 500% returns, or will shares plummet 72% like GNPX?
Here’s what you need to know…
Should I Buy Airbnb Stock?
Airbnb is one of the most highly anticipated IPO offerings of 2019. Uber is also expected to go public, but it’s bleeding billions of dollars.
In comparison, Airbnb made nearly $100 million in profit on $2.6 billion in revenue in 2017.
Investors won’t have to wait around for Airbnb to eventually become profitable.
It already is, and by 2020, the company expects to make $8.5 billion in revenue. The more money Airbnb makes, the more investors will want to own the stock.
The demand could send the Airbnb stock price skyrocketing.
But should you buy Airbnb stock as soon as the company goes public?
Money Morning Defense and Tech Specialist Michael A. Robinson does not recommend retail investors buy in at an opening IPO price.
You see, insiders like big banks and wealthy venture capitalists can buy shares of a company early. For example, Snap Inc. (NYSE: SNAP) sold shares to these type of insiders for $17. When Snap shares opened to the public on March 2, 2017, retail investors had to pay $24 per share.
This “after market” makes it hard to profit from IPOs. The biggest gains will always be made by insiders.
But for those who really want to own Airbnb stock on the first day of trading, Robinson has a strategy to minimize risk and maximize profits.
“If folks still want to buy in what we call the after market, then by all means, they absolutely must put in a limit order. I recommend no more than 10% above the suggested offering price. That way you don’t buy at the high point of the day only to see it fall that session or over the next few trading days,” Robinson told us in 2017.
But if investors still want a piece of the Airbnb IPO action, there are two better investment strategies than investing in Airbnb directly.
The first Robinson recommends for Money Morning readers is the First Trust U.S. Equity Opportunities ETF Fund (NYSE: FPX).
“With it, you can grab the upside and excitement that IPOs offer – and sidestep all the volatility inherent in new issues. In other words, let the fund managers do all the heavy lifting while you sit back and watch the profits pile up,” Robinson said.
While FPX doesn’t specialize in just new tech stocks, it does mirror the broader market for IPOs.
And with 100 stocks in its holdings, the fund provides more diversification and limits the risk of owning just one stock.
For example, Snap Inc. (NYSE: SNAP) represents 0.68% of FBX’s holdings. But PayPal Holdings Inc. (NASDAQ: PYPL), a more proven and profitable company, represents 8.39% of FBX’s holdings. If the Snapchat stock price falls, the losses can be offset by PayPal, which has climbed 19.15% over the last 12 months.
The second way to play the Airbnb IPO is through its suppliers.
When we researched the Airbnb supply chain, we discovered a list of three major suppliers:
Each of these companies provides cloud computing services for Airbnb. Having a client like Airbnb is impressive, and it’s only going to help these three stocks climb.
You see, companies would rather pay to use a cloud computing service than build their own infrastructure. A systems administrator to run a company’s cloud could cost $120,000 or more per year, which doesn’t include salary benefits.
Some of Box’s business plans cost as little as $5 per month for secure file sharing and collaboration.
And the trend of “renting” cloud services is only going to grow…
For 2016, Statista projected global revenue for the enterprise cloud computing market was $48.7 billion. By 2019, that’s expected to skyrocket to $80.7 billion in revenue.
That’s a 65.70% increase in just three years.
In the next year alone, the NEWR stock price is expected to climb 48.92%, the AKAM stock price 50.19 %, and the BOX stock price 72.23%, according to estimates on FactSet.
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