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The booming cloud infrastructure market has likely put Hashicorp stock at the front of your mind, and rightly so.
Its initial public offering (IPO) is scheduled for Dec. 8 under the ticker HCP.
And now is a better time than ever to do so. Investors are pouring money into tech stocks with high growth potential. Just in November, cloud software company Toast Inc. (NYSE: TOST) went public and is now worth $30 billion.
HCP plans to sell shares at a price range of $68 to $72. Morgan Stanley, Goldman Sachs, and JPMorgan are all underwriters for the Hashicorp IPO.
This stock could bring huge long-term gains, but practice caution in the first days after it goes public. Based on the high listing price and other concerns I'll mention later, I think you should skip the IPO and buy Hashicorp stock after prices fall.
What Is Hashicorp Inc.?
First, infrastructure software is a collection of online programs and applications that allow businesses to run smoothly and easily connect with customers. Think company databases and e-mail systems.
Hashicorp Inc. develops cloud-based software tools that enable huge companies to use and automate infrastructure software more seamlessly. You'll see this kind of cloud technology when websites enable Google sign-in or mobile pay. It's super useful and valuable to both businesses and consumers.
HCP itself offers four cloud-based tools - each designed to automate different areas of operation for busy enterprises. One of its popular tools, Vault, sells identity-based security automation as a monthly service that businesses can opt in and out of.
This company is a major force in the infrastructure automation industry, servicing well-known companies like Hulu, Barclays, Progressive, and the popular music platform Pandora.
The Hashicorp leadership team is quite impressive as well. CEO Dave McJannet has over fifteen years of experience in product marketing and management. Before joining Hashicorp, McJannet served as product marketing team lead at VMware - a legacy cloud technology company.
Plus, Hashicorp's remote-first company structure gives it a strong advantage with the ongoing pandemic and labor shortage. As of now, there are about 19% of jobs in the United States with no one to work them. Companies that can offer a competitive work environment, pay, and extended remote work capabilities will attract more of the limited workforce.
Is Hashicorp Stock Profitable?
For the fiscal year 2021, Hashicorp lost over $83 million, versus a smaller $53 million loss the year before. Technically the company is not profitable at the moment. If HCP doesn't turn those numbers around, it could fall through the cracks of the oversaturated cloud software market.
However, the company's losses could be a good thing. In 2021, HCP expanded its administrative, sales, and marketing teams, likely to ensure its success when going public. While this hurt its bottom line in the short term, it bodes well for the company's future.
Plus, it's normal for enterprise software companies to spend big on marketing before an IPO. A study by Deloitte found that marketing led to revenue growth for over 38% of companies, so it's typically a smart investment.
Besides, the company is anything but broke. In July 2021, it had $244 million in cash on hand and $75.1 million in revenue. Compare that to $50.5 million a year earlier, and HCP is right on track for long-term profitability.
With 98% of sales coming from subscriptions, all the company has to do is retain customers, and that revenue will at least remain steady. By the end of July, Hashicorp had 2,100 customers, and its investments in marketing and sales will likely multiply that.
Its revenue per employee is currently $98,249, with employment growth of 48% since last year. This is a strong sign of its future profitability since employees are increasing Hashicorp's value. And that will continue, as jobs are still opening within the company.
On a larger scale, the cloud infrastructure market has had rocket growth this year. In Q2 of 2021, it saw a $2 billion market size increase. This was its fourth consecutive quarter of growth so far. And if cloud companies like AWS and Microsoft are any indication, this market won't slow down anytime soon.
Hashicorp stock is bursting with potential and will likely bring huge earnings for investors. However, there are some risks you should be aware of - mainly the company's many competitors.
The cloud infrastructure and software industries are just as crowded as they are lucrative. With major players like IBM, VMware, Amazon, and Google all offering similar services, HCP has a lot to prove.
With a stock like this, earning big is all about making the best play. Here's what I think you should do...
Don't Buy Hashicorp Stock Until the Price Drops
As we've covered, the market for cloud-based devices is set to soar in the next few years. Since many investors are cashing in on these projections, Hashicorp stock could perform extremely well.
But not before it tanks. With the competitive state of the cloud software market and the current unprofitability of Hashicorp, investing during its IPO is a bit of a gamble.
On one hand, you could get in on the ground floor of a potential-packed company. On the other hand, if it never becomes profitable, you could see a rather expensive loss.
Highly anticipated tech stocks usually perform well on the first day of trading, then experience a dip within the first week. Take Braze stock (NASDAQ: BRZE), for example.
The company's initial listing price of $93 blew expectations out of the water. But prices dropped by about 20% within the first seven days and are currently in a -36.43% dip. Investors who waited to buy Braze stock can now get shares significantly cheaper.
This mostly happens when stocks aren't profitable at the time they go public, so investors are watching to see whether that changes.
This moment of low share prices is your chance to get in on low prices with high potential earnings. Give your portfolio a long-term winner with Hashicorp stock, but buy after the IPO for the best value.
I recommend patience with the Hashicorp stock IPO, but there are better opportunities out there right now, like this one...
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