IPO lockups are when insiders of a company can finally start selling their stock. These usually refer to employees at every level of the company, from the c-suite to customer service. For the average employee, the stock-based compensation they receive from the company can represent a significant portion of their net worth. Thus, what these employees decide to do at the IPO lockup has a big impact on their liquidity and long-term investments. Let’s take a look at four high profile tech IPOs with upcoming lockup dates:
PagerDuty, PD (10/8/19)
PagerDuty went public at $24 per share and is currently trading around $34 ($2.7 billion valuation) for a gain of 41.6%. The 52-week range for the stock is $33.25-$59.82. The stock price has fallen more than 40% from its high. This is a sign that the market may not consider PagerDuty to be as valuable as it did at first glance. The stock would look better if it could get some cushion back above its 52-week low.
Advice for IPO lockup: Employees with stock options should be wary of the stock’s recent performance. PagerDuty is operating in a very competitive sector and it could take time for their competitive edge to materialize. As such, selling a majority of stock options and divesting them makes a lot of sense.
Update as of 9/27/19: Pagerduty has fallen further, to $28 and is barely holding onto post-IPO gains. This is a sign that the market continues to lose confidence in Pagerduty as a compelling investment. The stock needs to regain $30 in order to start trending higher again.
Zoom Video, ZM (10/15/19)
Zoom went public at $36 per share is currently trading around $92 ($25 billion valuation) for a gain of 153%. The 52-week range for the stock is $59.94-$107.34. The stock price has done an excellent job maintaining a large chunk of its IPO gains. This is a sign that the market has a lot of confidence in Zoom’s long-term growth potential. As long as Zoom stays above $80 or higher, the stock is in very good shape.
Advice for IPO lockup: Employees with stock options should be thrilled to see the stock doing well amid broader market volatility. We see Zoom as a market leader in a growing market segment (enterprise video on demand). Employees should sell 25% of their shares to lock-in gains while also keeping significant upside exposure intact.
Update as of 9/27/19: Zoom has fallen below $80 to trade near $76. The market is selling Zoom amid broader losses in the software sector. The stock is still holding up comparably well, but option holders should definitely consider selling 25% or more of their shares at the lockup.
Pinterest, PINS (10/15/19)
Pinterest went public at $19 per share and is currently trading around $35 ($19.2 billion valuation) for a gain of 84%. The 52-week range for the stock is $23.05-$36.83. The stock price just recently made a new high and is doing a good job staying near that high. However, before doing so, Pinterest stock price was very volatile. On May 16, 2019, Pinterest stock fell more than 15% in a single day. So while the recent trend has been higher, it comes with a caveat to expect volatility moving forward. That is a sign of some uncertainty and shows the market still needs more time to figure out its long-term stance on Pinterest stock.
Advice for IPO lockup: Employees with stock options should ask themselves how much volatility are they willing to handle? Pinterest has shown a bit of a boom or bust potential. That uncertainty leads us to say its better to be safe than sorry, and still sell a decent amount of Pinterest shares after the IPO lockup.
Update as of 9/27/19: Pinterest has fallen from $35 to $26.50, exhibiting the volatility we warned about in our initial write up. We don’t see the volatility abating anytime soon, so it’s still just a matter of how much volatility you can stomach. Selling a decent amount of Pinterest shares after the IPO still makes sense, but we wouldn’t be surprised if the share price is higher in 6-12 months.
Uber Technologies, UBER (11/6/19)
Uber went public at $45 per share and is currently trading around $34 ($56.6 billion valuation) for a loss of 24%. The 52-week range for the stock is $32.92-$47.08. The stock price has stayed under its IPO price for the majority of its time as a public company. This is a sign that the market thinks Uber was overvalued as a private company. Even after the recent decline, Uber has yet to entice investors which is a worrisome sign in the short-term.
Advice for IPO lockup: Employees with stock options should be concerned with how many Uber shares there are in the public market. The company has arguably given out too much stock over the years and is now facing the consequences of too much supply. Selling a majority of stock options and divesting them is likely a wise decision.
Update as of 9/27/19: Simply put, Uber doesn’t look good as it’s now trading around $30. The recent WeWork fiasco has likely only added to the concerns surrounding Uber stock. The market is clearly worried that there are too many shares coming due and we expect the stock to remain under pressure.
Every individual’s investment situation is different. However, in general, you should lock in gains from your employer’s stock on some level. You don’t have to sell it all, but you should certainly sell some. Consider how much of your life capital is already leveraged to your employer. For example, they pay your salary, cover your healthcare, and are usually the biggest source of retirement savings (401k). Therefore, the prudent thing to do is to deleverage yourself as much as you can. The best way to do that is to sell a portion of your employee stock options and divest that capital.
Everyone fears they will sell their employee stock and see the share price rocket higher over the next 5-10 years. But statistically, that isn’t likely to happen. A study by Wealthfront found that employees were best off selling their employee stock as soon as they could. When you do that you free up liquidity for other investments which are usually safer and less volatile. Besides, the market rate of return you can achieve from broad-based investments typically outperforms your employee’s stock. So whether you own PagerDuty or any of these stocks, make sure you have a plan for your IPO lockup!
Note: This article was updated on 9/27/19 to reflect recent price declines in the stocks referenced herein.
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