As far as interesting IPOs go, I think that DatChat (NASDAQ:DATS) is in the top five so far in 2021. The business went public in the US back in August. Although investors have seen high volatility with the stock since launch, DatChat shares have almost doubled in value since earlier this summer. So could this be a gem for me to invest in at the moment?
Looking at the fundamentals
The company currently has a market cap of only $150m so is by no means a behemoth like others in its industry. And in terms of that sector, DatChat is a social media company, with the DatChat messenger being similar to something like WhatsApp. However, the business also markets itself as a blockchain and cyber-security company.
The security aspect works in that the user has a lot of control over the content shared on the platform. This is aided by the patented technology around the DatChat Private Social Network. Users can even choose to permanently delete photos and conversations. As the website comments: “There is absolutely no reason why everything we post needs to last for all eternity.”
Blockchain comes into play with further development of privacy on the social media platform. This will mean that DatChat will be powered by a decentralised global messaging blockchain at some point in the future. This is very interesting, and shows the potential uses of blockchain technology beyond cryptocurrency, which is what the main use thus far has been.
Could DatChat shares offer value?
I think the concept behind the business is great, and can see why DatChat shares have performed well since listing. From the IPO price of $4.15, they currently trade at $7.66. However, the shares have traded above $15 in the recent past.
The company is a growth stock, which means there are high risks attached. For me, it comes down to the financials. In the latest quarterly update (through to the end of June), no revenue was recorded for the business. As a result, it’s hardly surprising that there was a net loss for the first half, at $1.6m.
The saving grace is that the company did have $1.1m of cash on the books, with only limited liabilities. When I add on the higher share price and the potential to raise more money from selling shares, I don’t think the business is at immediate risk of going bust. However, there’s a clear risk that the company simply doesn’t gain enough traction to become profitable in the future.
Another point I need to consider is that the industry is dominated by a few large players. But I don’t necessarily see this as a bad thing. Either DatChat takes off due to the unique selling points around security and generates market share that way. Or a large company could buy it out for a premium. Either way, DatChat shares should stand to benefit. Or at least, I hope so.
Overall, I’m considering allocating a small amount of money to DatChat shares. I think that it does have a chance of becoming the next big thing, so I want to be involved!