In With the New: The Cheddar 50 Index Adds New Stocks for the New Year

December 17, 2018

By Kavitha Shastry

In any given year, the boom and bust trend cycle favors some things (surgery on a grape, anyone?) and dispenses with others (did you know millennials killed American cheese?).

The same can be said for the ever-changing realm of publicly traded companies. As firms IPO, make acquisitions, or in some cases, fail entirely, benchmark indexes have to adjust as well.

Over the past year or so, our own Cheddar 50 Index has added names like Spotify ($SPOT) and Dropbox ($DBX) after their offerings and dropped Whole Foods, which was bought by Amazon ($AMZN), and Blue Apron ($APRN), whose stock has fallen nearly 90 percent since it came to market. And with Pandora ($P) getting acquired by SiriusXM ($SIRI) and a Sprint ($S)-T-Mobile ($TMUS) deal on the horizon, it's time to make some changes again.

So, as 2019 approaches, let's take a look at the newest members of the Cheddar 50.

#5: Eventbrite ($EB)

The online ticketing company saw big demand for its September IPO, pricing shares higher than expected and seeing the stock jump as much as 70 percent in its first day of trading. It's come down a bit since then and dropped again after its first earnings report last month ー costs related to its offering caused it to post a bigger loss than analysts were expecting ー but Eventbrite is also looking for new opportunities to grow.

In October, the company announced a partnership with Alphabet's ($GOOGL) YouTube to sell concert tickets through music artists' pages. And in November it launched Eventbrite Music, a platform for independent venues and festivals.

CEO Julia Hartz joined Cheddar on the day of the IPO to discuss what differentiates the company.

"Eventbrite has uniquely aggregated many unique live experiences around the world," she said. "Three million live events on the platform last year, 700,000 event creators. I think this middle market is a different type of market than investors have seen before."

#4: Tencent Music ($TME)

Chinese tech giant Tencent was in the headlines often this year. The owner of the company behind "League of Legends" ー and a major stakeholder in Fortnite-maker Epic Games ー it's also the developer of WeChat, China's uber-popular messaging app. It's had some issues over the last several months ー an internet and video game crackdown in its home country sent its Hong Kong-traded shares down as much as 46 percent from their all-time highs. And broad market turmoil caused it to delay listing its music-streaming division in the U.S., an IPO originally on track for late fall.

But Tencent Music finally did come to market last week, pricing shares at the bottom of its $13 to $15 target range. Still, it was one of the biggest offerings of the year, raising $1.1 billion and getting a valuation of nearly $20 billion. The company swapped shares in itself with those of U.S. rival Spotify ($SPOT), which made its non-traditional debut on the NYSE in early April, making both companies investors in each other.

And while Spotify certainly has better name recognition ー in the U.S., at least ー Tencent Music has one big leg up: the company is actually making a profit. The company boasts 800 million monthly active users ー although only about 23 million of those pay for the service. TME posted earnings of nearly $400 million in the first nine months of 2018; Spotify, meanwhile lost more than half a million. Tencent also has exclusive deals with the three major music labels (Universal, Warner, and Sony) in China and offers differentiating services like a karaoke app.

#3: Sonos ($SONO)

The rise of the smart speaker continued into 2018 with Sonos throwing its hat into the public market ring. The high-end hardware maker has become a favorite of audio snobs, and with an integration with Amazon's ($AMZN) Alexa ー and a promise to work with Google Assistant from Alphabet ($GOOGL) ー it's one of the only pure-play options in the market.

The stock made its debut at the start of August, pricing at $15 a share ー well below the expected range ー and now trades less than that, even after a short-lived spike in response to its last earnings report. Of course, it's been a tough couple months for the markets ー tech stocks in particular ー and Mike Groeninger, Sonos's VP of corporate finance, sees real opportunity going forward.

In addition to holiday prospects for the recently-launched Sonos Beam smart soundbar, he told Cheddar that growth will come by tapping the out-of-home speaker market, an area previously unplumbed in the company's 16-year history.

"Our goal, our ambition, is to be the world's leading sound experience company," Groeninger said in November after the report. "We realized that to do that you have to move outside the home as well, because that's where 50 percent of listening happens."

#2: SurveyMonkey ($SVMK)

The online questionnaire company has been around for nearly 20 years, but didn't go public until late September, and the long delay may have cost it. Reportedly worth $2 billion in its last private funding round back in 2014, the company formally known as SVMK priced its IPO at $12 a share, which gave it a valuation 25 percent less than that.

Like a lot of IPOs this year, the stock popped right out of the gate, jumping more than 60 percent in the early hours of its first day. But also like many of its peers, it's since come back down to earth. Some of the selling can be attributed to broader market turmoil ー October, after all, was especially tough for tech stocks with the Nasdaq dropping 9 percent and the Cheddar 50 down nearly 20 percent. SurveyMonkey lost about a third of its value.

But the stock rebounded after its first earnings report in mid-November after posting revenue growth of 18 percent, more than what analysts were expecting. That report came shortly after SAP ($SAP) announced it was acquiring Qualtrics, the only other major player in the survey software industry ー just days before that company went public.

SurveyMonkey CEO Zander Lurie has said that the $8 billion deal validates the opportunity in his industry.

"We feel like this is a massive category," Lurie said in an interview with Cheddar from the Web Summit in Lisbon, Portugal, before the Qualtrics acquisition was announced. "If you start with this premise that this is a category worth tens of billions of dollars globally, it can support multiple companies with multi-billion dollar market caps."

#1: Weed Stocks!

We'd be remiss if we left one of the biggest stories of the year out of the Cheddar 50. As recreational marijuana became legal in California and gained momentum across the country, Canadian cannabis companies including Canopy Growth ($CGC), Tilray ($TLRY), Aurora Cannabis ($ACB), and Cronos ($CRON) all came to market in the U.S. Many were already trading in their homeland.

It wasn't always the smoothest ride for these names. On one particularly crazy day in September, Tilray spiked from about $150 a share to $300 ー rising 25 percent in a matter of minutes ー then lost everything it gained and then some, endured several trading halts, and finally ended the day up about 40 percent. The stock now is well under $100.

But interest in the industry is standing firm. Corona-maker Constellation Brands ($STZ) took a $4 billion stake in Canopy in August, and tobacco giant Altria ($MO), maker of Marlboro cigarettes, confirmed a $1.8 billion investment in Cronos earlier this month.

Marijuana stocks trading in the U.S. do come with risks, of course, as the drug is not yet legal on a federal level here. To sidestep the issue, many American pot companies have chosen to list on Canadian exchanges, where recreational cannabis became legal in October.

Be sure to check out all of this year's Cheddar Awards and predictions for 2019 in our Crystal Ball series here.