3 Top Tech IPOs to Buy in October

Initial public offerings (IPOs) can be an alluring way to buy shares of a company. The media hype around companies going public, particularly tech stocks, adds to the feeling that buying shares on the first day of trading could bring inventors piles of cash…

 In reality, IPOs can be very risky for investors. But that doesn’t mean that the companies that have recently gone public won’t make great long-term investments. To help you find some recently minted publicly traded companies that could help you build wealth for years to come, we asked a few Motley Fool contributors for their top picks. They came back with nCino (NASDAQ:NCNO)Lemonade (NYSE:LMND), and Snowflake (NYSE:SNOW). Here’s why.

You can take this IPO to the bank

Danny Vena (nCino): Buying into an IPO can be fraught with risk, which is why many in-the-know investors generally avoid new issues. There are several factors that make buying into these fledgling companies more risky. One is the fact that individual investors can rarely get in at the IPO price, which is reserved for investment banks and institutional investors. Another is that these companies have a limited track record and no history of operating under the public gaze.

That said, there are newly minted companies out there that boast financial metrics that will help minimize the potential for failure. nCino (NASDAQ:NCNO) is one such enterprise.

nCino is a software-as-a-service (SaaS) company that provides cloud-based tools for banks and other financial institutions. Its platform helps onboard new customers, open accounts, make loans, and manage the entire lifecycle of the loan process. The platform uses data analytics, artificial intelligence, and machine learning to make these tasks more efficient while also managing regulatory compliance. nCino provides these services to banks and credit unions of all sizes and complexities, allowing its customers to access the platform anytime, anywhere, from any internet-enabled device.

The company counts more than 1,100 financial institutions as customers, including Bank of America (NYSE: BAC)Barclays (NYSE: BCS), and TD Bank (NYSE: TD) — home of TD Ameritrade, among others.

The writing was on the wall when nCino went public in mid-July. After initially pricing the stock in a range of $22 to $24, it was increased from $28 to $29 just days later in the face of overwhelming demand. On the night before its debut, the price was boosted again to $31, and even that wasn’t enough. When trading opened, the stock jumped out of the gate and never looked back, ending the day at $91.59, up 195%.

What had investors flocking to nCino’s offering? For the year ended Jan. 31, 2020, revenue of $138 million grew 57% year over year, accelerating from 51% growth in the prior year. At the same time, subscription revenue grew by 60%, down slightly from 69% in the prior year. The company maintained its impressive growth during the three months ended April 30, with revenue of $44.7 million, up 50%, while subscription revenue jumped to 65%. Like many SaaS companies, nCino has yet to generate a profit, as it sprints to gain market share.

In its freshman quarter as a public company, nCino reported record results, as revenue of $48.8 million climbed 52% year over year, while subscription revenue of $39.4 million increased 70%. At the same time, the company’s non-GAAP (adjusted) loss per share of $0.01 improved dramatically for a loss of $0.08 in the prior-year quarter.

While there are no guarantees that nCino will continue its winning ways, there are a couple of things working in its favor. Banks would be loath to change software platforms once they’ve been chosen due to the high switching costs. Additionally, the rapidly increasing subscriber growth will help ensure high recurring revenue.

It also doesn’t hurt that nCino has $91 million in cash on its balance sheet and no debt.

Getting in on a sweet opportunity

Brian Withers (Lemonade): Lemonade is upending the insurance industry with a company built from scratch on technology and an “un-conflicted business model.” It offers insurance policies for renters and homeowners in addition to pet health insurance, and relies on customer-friendly artificial intelligence chat engines to power many of its customer interactions. Between its powerful cloud software, machine-learning capabilities, and use of mobile phone technology, the company is aiming for “zero paperwork and instant everything.” Between its high-tech foundation, lower costs, and status as a public benefit corporation, it has all the makings of being a much bigger player in this $5 trillion industry.

Founded in 2015 and IPO’d in June 2020, the company has only one quarter under its belt as a public company. As an early-stage tech start-up, it’s growing significantly but losing money. Last quarter, customers increased 84% year over year to over 814,000, and premiums collected per customer increased 17% over the same period. This drove a 115% increase in its “in force premiums” to $155 million, which are committed premiums on the books as measured at the end of the period. Lemonade takes a fixed 25% of its total premiums collected as revenues, resulting in year-over-year top-line gains of 117% to $30 million. For the quarter, it recorded a $21 million loss.

It has a strong balance sheet with…

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