In the popular thought experiment known as Schrödinger’s Cat, the author of the illustration, renowned physicist Erwin Schrödinger, used it to confront a scientific absurdity of his time. In short, some early pioneers of quantum superposition drifted into a logical absurdity in their analysis of particle dynamics: that they can exist in a superposition of states simultaneously but only collapse down to a single state upon interaction with other particles.
However, such a conclusion entailed that mere observation (which represents a form of interaction) by a third party to quantum particle dynamics triggers a specific response. Therefore, Schrödinger reasoned that if this absurdity was the case, a cat in a sealed box with a decaying radioactive material designed to trigger a kill mechanism (poison or explosion) would simultaneously be dead and alive; that is, unless an observer verified the cat’s status to be one or the other.
Similarly, companies structured to help other enterprises — particularly small-and-medium-sized businesses (SMBs) — like Justworks Inc. face a somewhat analogous challenge that dogged scientists roughly a century ago. While delivering efficiencies should be a valuable service in the post-pandemic era, it’s also possible that COVID-19 fundamentally shifted the economic paradigm.
Thus, what impact can an outside participant have on core business dynamics? Let’s dive in to find out.
When Is the Justworks IPO Date?
Unfortunately, Justworks withdrew its IPO on July 13, 2022.
In sharp contrast to the popular public securities that received intense media coverage last year, Justworks at the time of this writing is still a private company. However, that would have changed once it launched its initial public offering (IPO), the first time a private enterprise enters the public arena, typically listing on an exchange such as the Nasdaq or New York Stock Exchange.
Prior to an IPO, a company will usually raise capital through private-equity funding rounds. Although laws have changed in recent years to permit greater access for retail investors to participate in initiatives such as equity crowdfunding, traditionally speaking, private-equity raises permit only accredited or institutional investors to participate.
With an IPO, however, anyone with a brokerage account can jump in on the first trading session. For Justworks, the cloud-based software platform provider that empowers SMBs to process various payroll and human resource functions, expectations called for the company to enter its name on the IPO calendar on Jan. 13. Shares would have traded on the Nasdaq exchange under the ticker symbol JW.
Admittedly, while the year was young, Justworks represented one of the more highly anticipated market debuts of 2022. Thanks to its exceptional relevance and targeting of SMBs — small businesses being the engine of the U.S. economy, employing nearly 61 million people — Justworks appears fundamentally justified in seeking up to a $2 billion valuation in its IPO.
Contrary to many other new listings, JW stock would have featured a relatively small initial float, with the issuing firm distributing 7 million shares between $28 and $32 each. At the high end of the pricing spectrum, Justworks, which enjoys backing from private-investment firm Bain Capital, will receive a gross raise of $224 million before deducting expenses associated with the deal.
Goldman Sachs Group Inc. (NYSE: GS), JPMorgan Chase and Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC) represented the lead underwriters for the IPO.
Undoubtedly an exciting opportunity, one curious detail emerged: no major shareholder expressed interest in acquiring JW stock at the IPO price. To be fair, no one metric or development should be the sole catalyst for an investment decision. However, it’s also important to point out that IPOs enjoyed a blistering rally last year.
By the numbers, new U.S.-based listings generated a valuation of over $301 billion, while the global tally extends out to more than $594 billion. Thus, it’s well within reason that irrespective of how amazing Justworks is, an exhausted retail investor base could sleep in on the proceedings.
Justworks Financial History
Despite the myriad variables associated with the first time a company goes public, Justworks raises its viability profile a few notches above the average market debuts with encouraging financial performances. To be sure, even strong numbers don’t guarantee or imply a higher probability of success. Still, all other things being equal, it’s better to have a positive track record than not.
Indeed, one of the key reasons why retail investors are eyeballing JW stock is the underlying growth narrative. According to Justworks’ Form S-1 (colloquially known as the IPO prospectus) filed with the U.S. Securities and Exchange Commission, the cloud-based services provider that also includes benefits and insurance-related revenues rang up $982.7 million in top-line sales for the fiscal year ended May 31, 2021.
Just as significant, the net income came out to $10.9 million, suggesting that Justworks’ profile — the company features 8,000 clients across all 50 states, translating to representation for nearly 140,000 worksite employees — is more than just marketing glitz. JW demonstrates sizable growth and is at this moment a profitable enterprise. In the year-ago level, the services provider delivered revenue of $742.4 million and a net loss of $20.3 million.
As with any IPO, prospective buyers of JW stock must be cognizant of nuances and risk factors. First, while annual sales for Justworks are large, so too is the cost of revenue. In FY 2021, the latter metric totaled $876.6 million. Most of this figure stems from benefits and insurance fees, meaning that this segment is high volume, low margin.
On the other hand, revenue from the flagship business of providing HR and payroll services for SMB clients is the exact opposite: low volume and high margin. For now, economic circumstances move favorably for JW stock. But if seismic changes occur — which would, per Schrödinger’s Cat, occur anyway irrespective of what Justworks does — such transitions could render the company’s sales mix vulnerable.
Perhaps the biggest concern for JW stock is its underlying focus. In theory, empowering SMBs to handle various administrative tasks through cloud computing and digital innovations will yield strong returns. Further, the COVID-19 pandemic resulted in a widely distributed worker base, thus limiting the effectiveness or influence of human operators in the field.
Nevertheless, the World Economic Forum warned last year that multiple SMBs remain closed due to the crisis. As well, they’ve collectively represented “one of the hardest-hit sectors amid the pandemic.” Thus, a depleted SMB market may not be in a position to adequately or consistently acquire Justworks’ services.
The company could choose to refile for an IPO in the future, if it wishes.
Assuming the economy returns to a close semblance to normal, JW stock could fly due to possibly greater demand for enhanced efficiency platforms. It’s also not an unreasonable assumption considering that the employment level remains below pre-pandemic norms: at some point, depleting finances may force workers to return to the labor market.
Still, nothing in the globalized economy occurs in a vacuum. As research published in the Journal of Economics & Management Strategy demonstrated, myriad factors from government-mandated lockdowns resulted in dramatic plunges in business activity within a short time frame. Unfortunately, SMBs suffered especially strong devastation, meaning that their recovery process will likely be dragged out.
With government aid not effectively allocated to the small-business community, the quick bounce-back needed to bolster JW stock doesn’t appear imminent. Thus, JW faces severe risks even though the company itself is promising.
How to Buy Justworks IPO (JW) Stock
By now, most interested investors must acquire JW at the open—if the company chooses to refile for an IPO—necessitating knowing how to buy stocks. Below is a quick refresher.
Step 1: Pick a brokerage.
With the best brokers competing similarly on incentives, take time to consider which platforms ideally fit your needs.
Step 2: Decide how many shares you want.
Because of uncertainties with IPOs, any participant should consider engaging only with a balanced share count.
Step 3: Choose your order type.
Before trading, learn these market concepts.
- Bid: The buyer’s best offer for a stock.
- Ask: The seller’s lowest acceptable price.
- Spread: The difference between the bid-ask price, the spread indicates market risk as this is also the profit margin for market makers.
- Limit order: Buy or sell requests at a predetermined price, limit orders provide transparency but no execution guarantees.
- Market order: Market orders guarantee fulfillment but only at the current rate.
- Stop-loss order: Stop-loss orders automatically exit your position at either a predetermined price or anything lower.
- Stop-limit order: Stop-limit orders only leave positions at a specified price, but they also carry non-fulfillment risks.
Step 4: Execute your trade.
Follow these steps to execute a market order:
- Select your action type (buy or sell).
- Enter the shares you want to acquire (or sell).
- Hit the Buy (or Sell) button.
Follow the same sequence for limit orders (but include your execution price).
JW Restrictions for Retail Investors
Review the Financial Industry Regulatory Authority (FINRA) rules on restricted persons before participating in an IPO. Don’t engage if you have privileged information.
Although Freedom Finance provided pre-IPO opportunities for JW (that is, acquiring shares at the initial offering price), the window has closed. You can bookmark the site to keep abreast of future pre-IPO access for other soon-to-be-public firms.
Beholden to Outside Factors
The feline’s fate in Schrödinger’s thought experiment depends not on a third party’s observation but rather processes that will occur regardless. Similarly, JW stock may not have control of its own fate, instead hoping for an economic miracle if it ever chooses to relist.