Should I invest in these IPO’s?
Q: What is an IPO? (Initial Public Offering)
Many stock advisors recommend not investing in an IPO in the first year.
In the past the company could invest money into the company anytime
When a company has to publish quarterly financial reports, some investors will get upset if profits aren’t always rising
Lemonade
Tech-based Insurance Company
IPO: July 2020
Uses AI to process new customers and claims
It keeps 25% of premiums, 40% of unused premiums are donated to charity
Currently offers renters, homeowners and pet insurance
Q: Many young people don’t have insurance. Why?
expensive
too confident (nothing bad will happen to me)
confusing
takes a long time to sign up
don’t trust insurance companies - they are evil
Q: Why do many people NOT trust insurance companies?
don’t pay out claims
takes a long time and lots of paperwork to process claims
Source: Lemonade
Positives:
Revenue tripled to $68 million in 2019
Customers rose by 84% in it’s most recent quarter
plans to expand into other types of insurance in the future (e.g. auto, life)
70% of it’s customers are under 35.
90% are first time buyers of insurance
Q: Why is this company so popular with young people?
sign up and process claims online or on their app
donations to charity - customers can choose the charities
processes claims quickly (using AI)
Downsides
2018: $52 million loss. 2019: $107 million loss
many richer, more famous rivals
rivals may adopt Lemonade’s business strategy
Virgin Galactic
Space Tourism company
IPO: Oct 2019
passengers travel to the edge of space, have a 6 minutes of weightlessness then glide to the ground
$250,000 for a flight ($1000 deposit needed) - 650 tickets have been sold already
5 pilots (on 2 flights) have completed the trip safely so far
Some famous future passengers: Angelina Jolie, Brad Pitt, Justin Bieber, Tom Hanks, Leonardo Dicaprio
Match the numbers in the diagram to the steps below:
Source: virgin Galactic Twitter
Take off - White Knight 2 carries Spaceship 2 and takes off
Release - Spaceship 2 is released and starts it’s rocket engine
Glide - The wings are lowered and the ship glides to the runway
Boost - Spaceship 2 climbs vertically
Re-entry - Spaceship 2 re-enters Earth’s atmosphere
Zero Gravity - Spaceship 2 reaches space
Landing - safely back on the ground
Positives
Has already built a modern space port in Nevada - has luxury accommodation (New Mexico paid for the space port up front in exchange for $5,000,000 annual rent)
no debt so far
Each plane full of people will bring in $800,000 profit per flight
They hope to be profitable by 2023
Mach 3 - Source: Virgin Galactic
Future Business:
Owns lots of Rocket Ship IP so may develop ships for other companies in the future
Mach 3. Will carry 9-19 people to destinations around the world. New York to Tokyo will only take 4 hours. (2023 = target)
Risks:
First flights were scheduled for 2020 but have been pushed to 2021 (at least)
One pilot has already died during testing
Any accident may scare off customers
2 rivals: Blue Origin (Jeff Bezos, still in testing phase), Space X (Elon Musk, focuses on launching satellites into space)
If the company needs to reduce it’s price, it will take longer to become profitable.
Extra notes:
2,000,000 people have over $10 million in the world
Target = 1000 customers a year in the first few years. Then it can lower prices
Typical X ray
$1-3 million for the machine
$300 per X-ray
Nano X machine
$10,000
Business plan: Provide machines for free and charge the hospital $40 per X-ray
Positives:
has a working prototype
Partnership with Fujifilm and SK Telecom (South Korea’s biggest wireless carrier)
CEO has a history of successes with other businesses (tech and health)
Risks:
so far no income at all
only 21 employees
hasn’t received regulatory approval for it’s devices
hasn’t started producing the machines at scale
Schrodinger, Inc
Software provider
IPO: Feb 2020
How do pharmaceutical companies find news drugs?
What are the problems with this method?
research the disease to understand the impact on the body
find a molecule or compound that may fight the disease - Where do they find new compounds?
test the compounds with computer models
test the compounds on cells or animals
clinical trials are conducted on humans
Phase 1 (safety) = 20-100 healthy volunteers
Phase 2 (efficacy / side effects) = 100-500 patients
Phase 3 = 1000-5000 people internationally
apply for regulatory approval
Main business (SAAS)
Schrodinger ‘s software is sold to Pharmaceutical companies
uses physics, chemistry and predictive modeling to test billions of compounds virtually instead of manually.
basically it uses AI for drug development
It’s clients only manually tests the drugs with highest chance of success
2nd Business:
Drug Development - by partnering with pharmaceutical companies
Risks:
The company is not profitable (because it invests all profits into it’s 2nd business)
It lost $25 million in 2019 and most analysts expect profitability in 2022
Should I invest in any of these companies?
Which one would you recommend?
All charts from Dec 12th 2020
Lemonade
Nano X Imaging
Virgin Galactic
Schrodinger, Inc
Source: Motley Fool
Up to date charts:
https://www.fool.com/quote/nyse/virgin-galactic-holdings/spce/
https://www.fool.com/quote/nasdaq/schrdinger/sdgr/
https://www.fool.com/quote/nasdaq/nanox-imaging-ltd/nnox/
https://www.fool.com/quote/nyse/lemonade/lmnd/