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Now that Cricut (NASDAQ: CRCT) has gone public, you can but into this firm, diversify your portfolio and add value in an industry that is performing well as people stay home during the COVID-19 pandemic. However, the initial public offering (IPO) of Cricut (NASDAQ: CRCT) proved that social media is a double-edged sword.
Prior to its recent debut, Cricut enjoyed strong support among the masses. Unfortunately, its leadership team integrated a Software as a Solution (SaaS) model into its smart-cutting machine platform, alienating both customers and investors. Learn more about the company, how it is performing and how ti buy its stock.
When Did Cricut IPO?
Cricut made its market debut on Thursday, March 25, 2021. Sadly, the only encouraging news was the debut itself. CRCT stock opened at $15.80, 21% below the initial offering price of $20.
It’s a dramatic twist of fate for the company, which benefited from a significant social media following. This made CRCT stock among the top-watched equity units on the IPO calendar.
Typically, IPO underwriters provide a discount for the stocks they’re taking public relative to what they likely might fetch in the public market to reward institutional investors who made an early gamble on the companies in question.
With CRCT stock, John Q. Public — who has no insider connections or extremely deep pockets — received more of a discount than the institutional folks. Clearly, this is not how you want to get the ball rolling on an IPO. But this event also serves as a reminder that betting on IPOs is no sure thing.
Cricut Financial History
Despite society’s push toward STEM (science, technology, engineering, math) education, the arts and crafts market continues to move against the grain — and robustly so. In 2017, the global arts and crafts sector generated $35 billion. Experts in the field believe that by 2021, it will hit $43.4 billion and nearly $51 billion by 2024.
Also, confirming evidence comes from Etsy (NASDAQ: ETSY), an ecommerce website focused on handmade or vintage items. Over the trailing year, ETSY delivered shareholders almost 400% returns. Therefore, anticipation grew for the CRCT IPO.
But it’s not just the industry where Cricut justified its valuation. In 2018, the company rang up $339.8 million in revenue. One year later, top-line sales hit $486.6 million. In pandemic-impacted 2020, Cricut delivered $959 million, nearly doubling the prior year’s sales result.
Better yet, the company is profitable, with 2020 net income coming in at $154.6 million. Plus, Cricut was free cash flow positive last year and currently has no debt on its balance sheet. With such substantive financials, the IPO slipup disappointed many involved in the buildup.
Cricut Potential
As a smart-cutting machine manufacturer, Cricut enabled anybody to be an arts and crafts developer or even budding fashionista. Thanks to the company’s integrated hardware and software platform, users could explore the boundaries of their creativity and share it with the burgeoning Cricut community.
However, management decided to incorporate a SaaS business model to some key functions in its platform, limiting non-paying users to 20 uploads a month. Many on social media interpreted this move as a pre-IPO cash grab. Given the immediate and intense uproar, Cricut introduced a grandfathering system to their proposed SaaS model.
For the time being, the damage has been done. If you’re willing to be patient and ride out some volatility, CRCT stock might deliver positive surprises. Again, the arts and crafts market is viable and lucrative. Second, Cricut machines are not cheap (the lowest-priced model costs $180) but have resonated with consumers overall.
How to Buy Cricut (CRCT) Stock
Is this an opportunity in the making? Possibly. If you want to take a shot, let’s run through the basics.
- Pick a brokerage.
Before you learn how to buy stocks, you must first pick a brokerage. Unlike the pre-internet days, you have myriad choices, ranging from convenient mobile apps to highly advanced trading platforms to traditional brokerages with brick-and-mortar branches.
Because of the increased competition in the investment platform space (and especially from mobile trading apps), most brokers now offer similar incentives, such as commission-free trading. Therefore, most of your decision-making criteria will come down to lifestyle and anticipated growth.
For instance, if you run a hectic schedule and prefer a minimal fuss, then a trading app would work well. On the other end, if you want to participate in advanced trading avenues such as derivative markets, you should look into full-spectrum brokerage services. - Decide how many shares you want.
Deciding your share count mostly comes down to 2 factors: Your tolerance for risk and the size of your account. Even with a large account, you may want to be careful with CRCT stock, given that it has almost no trading history.
Also, however many shares of Cricut you decide to purchase, you want to have this figured out before you put in your order. Once the market opens, you’ll be bombarded with information. Rather than react to the chaos around you, have your game plan prepared ahead of time. - Choose your order type.
Due to the constant fluctuations in the market, you must deploy specific order types to help secure your transaction. Also, you should familiarize yourself with these market concepts before the opening bell:
Bid: The bid is the highest price a buyer will offer for a stock. It is always lower than the ask.
Ask: In contrast, the ask is the lowest price that a seller will accept. It is always higher than the bid.
Spread: The spread refers to the difference between the bid and ask price. Mainly, this is important for 2 reasons. First, the spread represents the profitability margin for market makers as they acquire and distribute shares. Second, this represents de-facto liquidity. A narrow spread suggests ample liquidity while a wider spread indicates a less-liquid market.
Limit order: For maximum control and transparency, you should place limit orders, which execute only when the target stock reaches a predetermined price. The drawback of limit orders is that no guarantee exists that the stock will reach said price, which could leaving your order hanging unfulfilled.
Market order: Market orders execute at the next available price, thereby offering the advantage of fulfillment guarantees, so long as you place them during normal session hours. But the disadvantage is that market orders automatically fulfill at rates unfavorable to you — buy orders on the ask, sell orders on the bid.
Stop-loss order: A protective function for your portfolio, a stop-loss order automatically exits you out of a position at either a predetermined price or the next available price. Still, you must be aware of the gap-down risk, which occurs when a session opens at a much lower price than the prior session’s close.
Stop-limit order: Stop-limit orders prevent the nasty surprises associated with stop losses and gap-down sessions as they only execute at a predetermined price. But the risk here is the hanging effect as there’s no guarantee that your target stock will reach said price. - Execute your trade.
To execute your trade, follow these steps for a market order:
1. Select action type (buy or sell).
2. Enter the shares you want to acquire (or sell).
3. Execute the order
For limit orders, the process is identical except that you must enter the price you want the order to fulfill.
Since stocks tend to move quickly, you should consider a market order if you want to secure a position rather than nickel-and-diming your exact price point. But if you have an absolute limit to what you are willing to pay, the limit order is your best approach.
Best Online Brokers
Take a look at our list of best brokers to consider.
A Misstep You Could Use to Your Advantage
In many if not most cases, a stock like CRCT with a huge following rewards its early investors. But that’s not necessarily the case with Cricut, where an unpopular business decision put CRCT stock on its back foot during the IPO phase. Nevertheless, Cricut provides compelling exposure to a surprisingly profitable arts and crafts market. If you can handle the risk, you might want to check this one out.
About Joshua Enomoto
His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.