The Spotify AB initial public offering is quickly approaching.
It will probably be the biggest technology IPO of the year – and it’s definitely the most watched one right now.
That’s true for two reasons.
- Spotify is the leader in online music streaming, boasting some 140 million monthly active users – 70 million of them paying subscribers. That’s well over double the 30 million paying members it boasted just two years ago. Plus, it’s got a name brand that’s just about tops among tech startups, and a pre-IPO valuation of more than $19 billion.
- It’s pursuing an unconventional IPO. While it’s listing on the New York Stock Exchange, instead of using underwriters (i.e., big banks) to help sell the stock, set a price, and find interested buyers, Spotify is using a “direct listing” for its IPO. That means that every investor will be able to buy the stock at the same price on the day it opens. This gives retail investors the same opportunity as the hedge funds and other Wall Street sharks.
However, despite its popularity and success at obtaining and keeping paying subscribers, Spotify is still losing money and holds a significant amount of debt.
Plus, a company’s stock price after an IPO nearly always has volatile price swings – the kind that’ll make even veteran investors pull out their hair.
So here’s the thing: I don’t want you to put any of your money into the Spotify IPO.
I want you to do listen to this “secret” instead…
The “Secret Passageway” to Wealth
Don’t get me wrong. As a longtime advisor to Silicon Valley startups, I’m a big believer in the value of IPOs.
The chance to take exciting new tech firms public and make founders and early investors rich remains a driving force beyond behind Silicon Valley’s huge success.
Plus, new stocks are important for the overall market’s health. For a generational bull market like this one to keep running, it needs to have a steady supply of fresh cash – and nothing brings in as much money as hot new IPOs.
But there’s a problem – and it’s a big one. Most learning investors fare poorly in the early days of trading a new stock – even a “direct listed” one like Spotify. This is when the shares are most volatile and subject to profit taking after employees, venture capital firms, and others bound by lockup periods can sell their shares for big profits.
As much as I respect Spotify, I can’t help but recall the Snap Inc. (Nasdaq: SNAP) IPO. Snap, the owner of the popular Snapchat picture-messaging service, last year had an IPO that Wall Street promised would be an easy home run.
Instead, the stock is down about 55% down from its first day of trading on March 2, 2017.
Now you can understand why I tell learning investors who want to cash on the IPO market take a good look at this instead.
Consider it a “secret passageway” to the tech-stock sector’s biggest profit machine…
The Spotify Play to Make Right Now
The First Trust IPOX-100 Index Fund (NYSE: FPX) tracks the market for IPOs – and it’s one of my favorite exchange-traded funds (ETFs).
By all accounts, the IPO market has a clear head of steam these days, particularly for tech leaders like Spotify and Dropbox Inc., a cloud storage firm that filed earlier this month to go public likely before 2018 is half over.
According to VentureBeat, last year 37 tech firms went public on the U.S. markets – and they raised $9.9 billion. That’s roughly 50% above the 21 tech IPOs we saw in 2016 – and a 241% increase from the $2.9 billion raised that year.
But lost in the data is that fact that in the first six months of trading IPO stocks remain very volatile.
That’s why we’re talking about FPX today – and why I’m encouraging you to snatch it up and putting it in your portfolio for the long haul.
By doing so, you grab all the upside and excitement that fuel IPOs. And you avoid all that nausea-causing volatility.
You let the pros do all the heavy lifting – picking and choosing among which IPOs to invest in – while you sit back and enjoy the big gains…
Driverless Cars, Fintech, the Cloud… and More
To be clear, FPX’s managers don’t specialize in new tech stocks. Instead, they seek to mirror the broad IPO market.
FPX’s 100 or so holdings give us a good combination of the tech stocks we love and broad diversification. Forty-five percent of its top holdings relate to technology or the life sciences – and FPX also gives us access to finance, auto, retail, heavy industry, energy, and even some metals.
Nor do the fund’s managers jump on every new IPO that comes along. These are focused and disciplined analysts who seek to balance high returns and stable investments.
The managers have acquired a long list of winners. Let’s take a look at four of them…
- Delphi Automotive PLC (Nasdaq: DLPH). This storied auto supply firm has rapidly become a global tech leader thanks to its huge advances in the field advanced driver assistance systems (ADAS) needed for semi-autonomous driving. This is a visionary firm – back in 2010, Delphi laid out a 15-year roadmap for the era of truly connected cars using the most advanced ADAS. Last year, it announced a $4.5 billion spinoff of its powertrain division so it could focus even more on its tech offerings.
- LogMein Inc. (Nasdaq: LOGM). This Boston-based firm develops in cloud-based collaboration and training services – for example, GoToMeeting – and markets them to small and medium-sized companies. It’s a bona fide growth firm. In the most recent quarter, earnings surged a stunning 107%. Last year, it become one of the world’s top 10 cloud computing firms after paying $1.8 billion to acquire the GoTo unit from Citrix Systems Inc. (Nasdaq: CTXS).
- Arista Networks Inc. (NYSE: ANET). Thanks to a constant focus on innovation, this Silicon Valley firm has emerged as one of the fastest-growing suppliers of internet traffic control systems. In the process, it has steadily taken market share from much larger firms like Cisco Systems Inc. (Nasdaq: CSCO). Arista has been boosting sales at a 40% yearly clip – and it shows no signs of slowing down. Third-quarter earnings rose 95%. Last year, it ranked third on the list of 25 fastest growing tech companies as complied by Forbes.
- Square Inc. (NYSE: SQ). Once thought of as an also-ran in digital payments, this aggressive player has become a true global fintech leader. In fact, Square’s running string of blowout quarters has helped it power up gains for FPX investors. Sales should rise around 30% next year – and profits at twice that rate. It’s also a play on Bitcoin – the firm recently said it’s going to allow its customers to use its Square Cash app to purchase the world’s leading cryptocurrency.
A Piece of the “White-Hot” Action
Now, if you listened when I first brought FPX to the attention of Strategic Tech Investor readers on July 20, 2013, you’ve already made a profit of 91.8%. In comparison, the Dow Jones Industrial Average has climbed just 70% in that time.
But the good news is there’s still time to net even more gains.
Now trading at around $73, FPX is priced cheaper than many of its portfolio holdings while offering a lot more stability.
That’s why I think this is the most cost-effective way for you to cash in on the exciting – yet volatile – IPO market
Since the market sold off in February 2016, FPX has returned 73.6% to investors, beating the S&P 500’s profits during the period by more than 30%.
FPX truly is the easiest way I know of to get in on Spotify – and the rest of the white-hot market for IPOs. It will save you a lot of time, energy, and worry.
I believe it will make you a lot of money, helping you build your net worth so that you can live the life of your dreams.
And once that happens, Wall Street investment banks will be coming to you… recognizing that you’re now a high-net-worth investor, and begging you to take a piece of their best IPO deals.
But you’ll no longer have to…