Recently, Lemonade (LMND) a high-flying IPO reported earnings for its first quarter as a public company. The headline from Breifing.com showed Lemonade missed consensus EPS, and guided below consensus on FY20 revenues.
Other than that Mrs. Lincoln, how did you enjoy the play?
In my career, I have worked on several high-profile IPOs, including: OpenTable, HomeAway, Qihoo 360, and Fitbit among several others. The most successful IPOs get one thing right: setting guidance and expectations correctly.
Successful IPO companies set their stories up to beat expectations in their first year. An IPO home run drives beat and raises in each of the first four quarters of being a public company.
Why are the first four quarters as a public company important?
As a company, you will never spend as much time coddling and cajoling analyst models and controlling consensus than you do during the IPO process. With so much interaction between analyst and the company it is a lost opportunity if the IPO company fails to set guidance correctly out of the box.
Investors do not know you and do not trust you because you have no track record. You must get numbers and expectations right in this early period. An IPO company gets four quarters to establish performance and credibility.
The cardinal sin of IPOs revolves around missing numbers on your first earnings release. Missing so early as a public company is horrible. Missing numbers diminishes credibility with investors. When you are an IPO that missed so soon you face a climb up the credibility mountain as steep as the Himalayas.
If you are considering, or are in the process of an IPO, make sure you spend ample time on setting expectations. Make sure you have an IRO or CFO that can set and manage expectations accordingly.
Finally, consider an important maxim from a wise mentor: When you are going through an IPO consider taking a 10% to 20% haircut to your internal board projections before presenting them to the Street.
