The IPO market has been active to say the least. Over the past couple of years, there has been no shortage of high-profile companies that have gone public, especially in the tech sector. To help separate out the long-term winners, we asked three of our Motley Fool contributors to discuss some of the recent IPOs they're watching. Here's why they think DocuSign (NASDAQ: DOCU), PagSeguro Digital (NYSE: PAGS), and VICI Properties (NYSE: VICI) are all worth a closer look.
A leader in a rapidly growing business
Matt Frankel, CFP (DocuSign): Since its IPO in April 2018, e-signature leader DocuSign has given its investors quite a wild ride. The stock went public for $29 per share, and quickly soared to as high as $68 before crashing to less than $40 by the end of the year and rebounding to its current level. As of this writing, it is still more than 20% below its all-time high.
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To be sure, a roller-coaster stock price is par for the course for recent IPOs, especially one as fast-growing as DocuSign. However, the company's strong growth and leading market position are exactly why I feel like this could be one of the biggest long-term winners of all the recent IPOs.
Its most recent quarterly report showed that it generated 37% revenue growth and $30 million in free cash flow. The company's customer base grew by 26% year over year, including 33% in the very important enterprise and commercial customers category. On the extreme upper end, DocuSign grew its base of customers with contract values greater than $300,000 by an extremely impressive 51%. As a result of the strong numbers, the company increased its full-year revenue guidance.
To be sure, I don't expect it to be a wildly profitable company anytime soon, but that's not the point. This is a great business with tremendous growth momentum, which could certainly translate to big profits down the road.
A huge Brazilian fintech opportunity
Matthew Cochrane (PagSeguro Digital): One company that I believe has received far too little love from American investors since going public in early 2018 is PagSeguro Digital. It offers several financial solutions to merchants and consumers in Brazil, but makes most of its revenue by enabling small- and medium-sized businesses (SMBs) to accept digital and card payments both online and at the point of sale.
In the company's 2019 first quarter, adjusted net revenue increased 59% year over year. The strong top-line growth was driven by a 43% increase in active merchants and a 70% rise in total payment volume (the amount of money traveling through one of the company's devices or services). Even better is the growth of its additional revenue. This accounts for the new services and features PagSeguro has been rolling out, including prepaid cards, lending, and a digital platform that allows for bill payments and peer-to-peer payments. In Q1, additional revenue grew 125% year over year.
The rapid growth highlights the vast opportunity for its services in the Brazilian marketplace. Brazil's economy is the largest in Latin America as measured by GDP, yet it has relatively low card and digital-payment penetration rates. PagSeguro is reaching new merchants that previously only accepted cash payments, as 75% of sellers joining its platform did not accept card or digital payments before becoming customers.
In Brazil, SMBs and micro-merchants account for more than 99% of all enterprises, giving PagSeguro an almost unlimited potential customer base to reach in a growing economy.
Veni, vidi, VICI
Dan Caplinger (VICI Properties): Many businesses have a lot of capital tied up in their real estate assets, and that can depress returns on capital and make businesses look a lot less efficient than they actually are. VICI Properties came about as a result of the bankruptcy proceedings for Caesars Entertainment Operating Corp., which split off the casino resort management business of Caesars Entertainment (NASDAQ: CZR) from Caesars' real estate holdings. VICI shares started trading in February 2018, and they've not only risen in price but also continue to pay a dividend yield above 5%.
Back in June, Eldorado Resorts (NASDAQ: ERI) proposed a merger with Caesars Entertainment. That had huge implications for VICI, as the terms of the deal involved the REIT acquiring key assets from Eldorado, including Harrah's properties in New Orleans; Laughlin, Nevada; and Atlantic City. VICI agreed to pay $3.2 billion in cash for those assets, but it sees its annual rent rising by more than $250 million as a result, giving it a reasonably attractive capitalization rate.
VICI appears to be in a stronger position than ever. With solid performance in the casino industry across the U.S., it now finds itself with an even more diverse portfolio of real estate. As long as the Eldorado/Caesars merger goes through as planned, VICI is in position to enjoy substantial growth.
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Dan Caplinger has no position in any of the stocks mentioned. Matthew Cochrane has no position in any of the stocks mentioned. Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends DocuSign. The Motley Fool recommends PagSeguro Digital. The Motley Fool has a disclosure policy.