Flagship Pod 89: Breaking down 3 huge IPOs

09/11/2023
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Now let's get into what we reviewed.

Here are the 4 key things we went over:

  • Where the sports betting industry will head this season

  • Which IPOs from September are the most likely to succeed

  • How the political situation leading up to 2024 will affect the market

  • Why the dollar is still strengthening

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.

To get all the juicy details, just listen to the entire recording. And now, onto the summary👇


Sports Betting is On Fire:

With the first weekend of NFL football in the books, it's time to turn our attention back to the sports betting industry. 

And hey, if you missed it last week we updated our price target for DraftKings now that they beat our aggressive strategy from last year. If you don't feel like reading that, let's quickly discuss what's going to be the winning formula for sportsbooks as revenue starts flooding back into the space:

  • Product over branding, every time. There is a tremendous amount of ad spend flying around this industry as big players like FanDuel and various casinos try to establish dominance. But low-cost growth is going to beat that every time, and folks can only achieve that by having a product that's fun enough to keep folks coming back. That's how DraftKings has been able to keep EBITDA relatively high by refining a pitch-perfect game loop within both their sports betting app and their iGaming hub. Speaking of which: 

  • Diversification is critical.  While various players niche down and fight over specific areas within sports betting, DraftKings sank significant resources into a really solid iGaming platform that's given them north of 25% share in that industry -- leaps and bounds ahead of the next competitor. This gives them a lot of revenue leverage for when more competition enters either one of those niches.  

There's a lot more to DKNG than that, but those are the two major factors that will separate the contenders from the pretenders in this new industry. Make sure you read the rest of our post to get the full scoop on that industry. 

But with that industry already established, let's look at new players entering the public market after a full year of IPO winter:

Are Any of These IPOs Good?

The short answer is: maybe?

But there's a lot to unpack with the various new companies hitting the public market in the next month, so let's look at each one individually and list some pros and cons: 

  • Arm will be the biggest IPO of 2023. But they are in a very weak position. Their revenue is on a downward trend and they primarily make their money from Smartphone chips, which is an industry seeing 'very low demand'. This feels like an awkward cashout for SoftBank, so we'll avoid it until demand starts creeping back up. 

  • Klaviyo has concerns but is growing in the right way. This is basically the opposite problem that Arm has. Sure, the product is growing and doing well, but anecdotally their price point is a little high and they have a lot of competitors. As veterans of the digital economy, lots of Moby analysts have strong feelings about Klaviyo, so we'll sit this one out. 

  • Instacart has the most realistic valuation given all the questions we have. Basically, Instacart is surprising because they break even on grocery delivery, which means that's not even their 'real' business, it's simply the platform their profitability engine is built on top of. That engine? An insane advertising business. The real money is in selling ad space within the Instacart app. Our main question is simple: How scalable is this ads business with how saturated Instacart is already? They have decent growth prospects, so we'll keep an eye on them for their first few earnings calls before we make a PT for them or not.

So all in all, we're excited to see the IPO market come back, but none of these are worth jumping on until we see how the wider market reacts. Arm feels radioactive while Instacart is the most compelling case.

Wrapping This Up

We're largely encouraged by the IPO situation here, but now the market is shifting focus back to big tech with Apple's iPhone 15 launch tomorrow as well as the CPI printing later this week. If Apple pushes smartphone demand back up and inflation stays under control, then we're in for more of a volatile rise into the holidays. But this rally is still pretty fragile and investors are clearly looking for a reason to panic at this time.

We'll keep our analysis close to the chest so we can find the best value for our members as we move forward. 

We'll keep you posted as this market develops.