3 Tech IPOs This Week: What Investors Should to Know

June has been a jam-packed month thus far with companies from many different industries filing for IPOs and becoming public traded. This week it is the technology sector that will be seeing a few new additions to the NYSE and the NASDAQ.

Alarm.com, AppFolio, and Xactly are three tech stocks that are all scheduled to become available for public trade this Friday, June 26th. Alarm.com and AppFolio will be listed on the NASDAQ, and Xactly will be listed on the NYSE. As the three are set to enter the markets, the following will provide some information and insight into what exactly each company is all about, and what their IPO plan is.

Alarm.com

Alarm.com is a cloud-based provider of connected home technology that has started to draw interest from investors as the company’s IPO date nears. It is planning to offer 7 million shares priced between $13 and $15 under the ticker ALRM. The company hopes to raise $98 million with the offering.

Alarm.com’s main business is selling a monthly monitoring and security service that lets homeowners remotely control their lights, thermostats and appliances. What sets it apart from other home security systems is that it does not rely on an expensive network of monitoring gear and communications equipment, but instead is cloud-based, as previously mentioned, which cuts the company’s costs significantly.

With their use of the cloud-based system, Alarm.com reported a gross profit margin of 60% for 2014, and removing hardware sales that have a lower margin, the gross margin on their service revenue is an astounding 80%. The company also does not sell directly to consumers, with its sales being done by a large amount of dealers and security companies acting as third-party resellers.

Aside from its strong profit margins, the company is also drawing interest from investors because of several strong signs of company growth. Alarm.com was able to increase its revenue by 28% last year up $167 million, with net income increasing almost 3 fold from the previous year to $13.5 million. The company also saw a 21% increase in subscribers in 2014, adding in to a total of 2.3 million users. It also boasts a positive cash flow from operations in the last three years, something many recent tech IPOs have not had.

With strong margins and solid signs of growth, it is clear why the stock is creating a buzz. The company’s industry also holds a great amount of growth potential. With the smart home security and automation market projected to grow 21% by 2018, and only 1 in 12 currently having installed smart home gear, there is potential for a large amount of growth in the industry. If Alarm.com can take advantage of it, there could be a great deal of success in its future.

AppFolio

This California based tech company will also begin trading this Friday on the NASDAQ, using the ticker APPF. AppFolio is hoping to raise between $71.4 and $82.6 million by offering 6.2 million shares, with a price target of $12 to $14 per share. It plans to use the money raised from the offering to increase its financial flexibility and workforce. AppFolio also seeks to use the funds to expand its departments of research and development.

AppFolio offers online management software applications to small and medium-sized property management and legal companies. According to the company, its software provides a user-friendly interface across multiple devices, and the platform allows users to work anywhere at any time. Property management and legal companies are the primary industries that the company serves.

In terms of the company’s financials, its revenue for the first quarter of 2015 saw a 61% year over year increase in gross revenues to $15.85 million, up from $9.8 million in the first quarter of the previous year. Unfortunately, the company has had a history of losses, with the first quarter of 2015 posting a $3.6 million loss in its net income.

Despite AppFolio’s history of losses, the company was able to significantly increase its revenue year over year. The software solutions market for small-to-medium sized businesses is projected to double to $125 billion between now and 2016. If the company can improve on its profitability, it could be poised to be a valuable tech stock in the next few years.

Xactly

Another tech company out of California, San-Francisco to be exact, Xactly, will begin trading this Friday. It will trade under the ticker XTLY. The company will be offering 7 million shares, hoping to raise up to $97 million, with a price range between $10 and $12 per share.

Xactly is a provider of cloud-based incentive solutions for employee and sales performance management which is designed to improve employee productivity and align their behaviors with company goals. A list of its major clients includes Angies List Inc (NASDAQ:ANGI), LinkedIn Corporation (NYSE:LNKD), Twitter (NYSE:TWTR), and several others.

In the last three years ending January 31st of this year, the company has seen its revenue increase a total of about 68% to around $61 million, but at the same time seen its net loss double in the same time frame to $18.5 million. For the first quarter of 2015 Xactly posted a revenue total of $17.8 million, with a net loss of $5 million.

Xactly would be ecstatic to see results in its first day of trading replicating those of Benefitfocu (NASDAQ:BNFT) debut in September of 2013. BenefitFocus is a company very similar to Xactly, and they offer cloud-based software solutions to consumers, employers, insurance carriers, and brokers. Similar to Xactly, BNFT struggles with attaining profitability. BenefitFocus saw its stock price more than double on its first day of trading, going from its initial price of $26.50 per share up to $53.55 at the market’s close.

Bottom Line

The IPO market has been and will continue to boom this June, with 14 companies planning to become available for public trade this week and the month’s ending total possibly being as high as 37 IPOs. The tech companies listed above all have the possibility to be valuable to investors as time moves forward, especially Alarm.com more so than the others since it has its high profit margins coupled with projected industry growth.

If AppFolio can improve its profitability and continue to grow revenues, in addition to capitalizing on its own industry’s market growth, The company’s got a favorable shot at becoming successful in the eyes of investors. Similarly, if Xactly can improve its own profitability, while continuing to grow revenues, both companies have the possibility to become solid addition candidates and eventual place holders in investment portfolios abroad in the coming years.

In the nearer future though, it will be extremely interesting to see just how the market responds to the three tech companies as they enter the market later this week. Be sure to stay tuned for updates from Zacks on these three stocks moving forward.

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