Most companies that went public this year faced tremendous uncertainty. But those that braved the tumultuous conditions were rewarded with a perfect storm of demand. According to PitchBook, as of Dec. 14, there were 1,291 initial public offerings completed worldwide, raising around USD 331.47 billion. Though the number of deals are in line with previous years, the amount of capital raised was higher.
Notably, a group of giants--10 of them alone--now make up almost half a trillion in market cap.
These numbers might prompt individual investors to jump into IPO investing. But that might not be a good idea.
Morningstar Canada’s director of investment research Ian Tam cautions on the price action in the lead up to IPO stocks hitting the secondary market.
"For the individual retail investor, getting a ‘piece’ of an IPO at the stated initial offering price will likely prove to be a challenge since the majority of the shares are typically scooped up in large blocks in advance by institutional investors. The close price after the first day of trading may provide a better indication of the price at which shares are available,” he said, adding that the path to financial freedom is a marathon, not a sprint.
What should individual investors do?
“If you plan to hold the stock over a longer time frame, consider comparing the current stock price against the fair value estimate of the stock. Having a long-term fundamental view of the company will not only provide insights to whether you’re overpaying but may also let you sleep at night."
Here are the biggest single IPO deals by size and subsequent gains in market cap this year.
Market cap and returns to date are as of Dec. 14. Source: Pitchbook and Morningstar.
Warner Music Group (WMG)
IPO: June 3, 2020
Deal Size: USD 1.93 billion
Current Market Cap: USD 16.7341 billion
Approx. returns since IPO: + 31% - USD 32.86 (USD 25 starting price)
The first big deal waited for markets to begin to calm, with Warner Music--or rather, senior shareholders of the record label company--deciding to sell some stock. None of the proceeds went to the company itself; however, public shareholders eventually benefited after the stock nearly bounced off its IPO price at the end of October.
Li Auto (LI)
IPO: July 30, 2020
Deal Size: USD 1.092.50 billion
Current Market Cap: USD 29.2804 billion
Approx. returns since IPO: +260% - USD 30.83 (USD 11.50 starting price)
Li Auto’s high-end and hybrid electric vehicle offerings are riding a Chinese electric vehicle boom. “China’s share of total global EV sales is also growing at an astonishing rate”, says Elliot Johnson, who leads the Evolve Automobile Innovation Index Fund (CARS) at Evolve ETFs. “Factors driving this growth include the increasing size of China’s domestic market for consumer goods, economies of scale driving down prices, technological advances improving battery range, and the increased roll-out of charging stations,” he says.
Rocket Companies (RKT)
IPO: Aug. 6, 2020
Deal Size: USD 1.80 billion
Current Market Cap: USD 43.2313 billion
Approx. returns since IPO: +21% - USD 21.80 (USD 18 starting price)
This Detroit-based mortgage company has combined the power of podcast and omnichannel advertising with government-sponsored and insured products in the United States. The company’s flagship product is Rocket Mortgage, and it has since launched offerings in industries like auto sales and personal lending. Investors have made modest gains on this stock as it seeks to reclaim a peak in mid-November.
X Peng (XPEV)
IPO: Aug. 27, 2020
Deal Size: USD 1.50 billion
Current Market Cap: USD 32.9133 billion
Approx. returns since IPO: +209% - USD 46.47 (USD 15 starting price)
X Peng competes against Li Auto and targets the same luxury segment as NIO--the original Chinese EV stock. “Strong competition between NIO, X Peng, LI Auto, and Tesla proves an important point: The high demand in China means there is room for all of them,” says Johnson. “All four will struggle to meet demand in 2021 and 2022, as their biggest challenge will be how to scale up production while maintaining margins, along with the possibility of needing to raise more capital. Bottom line: This is not a zero-sum game in the Chinese market like it is in developed economies.”
IPO: Sept. 16, 2020
Deal Size: USD 3.36 billion
Current Market Cap: USD 93.2786 billion
Approx. returns since IPO: +273% - USD 328.45 (USD 120 starting price)
Some call Snowflake a “data warehouse-as-a-service,” or a company that takes on the weight of maintaining data so that it’s available when you need it. Early investors profited by predicting the growing demand for efficient storage as the stock rose around 216% since IPO.
Unity Software (U)
IPO: Sept. 18, 2020
Deal Size: USD 1.30 billion
Current Market Cap: USD 45.2874 billion
Approx. returns since IPO: +192% - USD 144.36 (USD 75 starting price)
Unity is a standard piece of software for 2D and 3D content designers across a wide variety of platforms, from smartphones to consoles and VR headsets. Since its launch, the stock’s steadily climbed to more than double its original trading price.
GoodRx Holdings (GDRX)
IPO: Sept. 23, 2020
Deal Size: USD 1.14 billion
Current Market Cap: USD 17.2877 billion
Approx. returns since IPO: +33% - USD 44.35 (USD 33 starting price)
It’s understandable to believe that a healthcare app stock would soar in a pandemic--and it did--but now it's nearing where it started.
IPO: Sept. 30, 2020
Deal Size: USD 2.5714 billion
Current Market Cap: USD 50.6648 billion
Approx. returns since IPO: +270% - USD 26.97 (USD 10 starting price)
Palantir emerged on the markets as a mysterious baron of Big Data. It had the big U.S. government contracts and combined that with data analytics and artificial intelligence. The stock has soared to around double our fair value estimate, but we remain optimistic, especially in the B2B space. “For the commercial segment, we expect strong growth as more companies and industries strive to understand actionable insights from their data stores and new data generated,” says equity analyst Mark Cash.
IPO: Dec. 9, 2020
Deal Size: USD 3.37 billion
Current Market Cap: USD 49.2371 billion
Approx. returns since IPO: -16% - USD 156.13 (USD 185 starting price)
DoorDash has become a food-tech ally, as households sought to add some variety and convenience to restricted dining options at home. With the IPO launching just as the vaccine rolls out, we’ll soon see how many now prefer dining-in over dining-out.
IPO: Dec. 10, 2020
Deal Size: USD 3.51 billion
Current Market Cap: USD 101.114 billion
Approx. returns since IPO: -14% - USD 127.92 (USD 146 starting price)
Frustration with booked-up hotels near a conference led these founders to take an air mattress and a website called “Air Bed and Breakfast" and grow to an app that’s logged billions of booked nights. It should continue to grow, but for now, we think it’s worth around USD 60.
You may have noticed that these IPOs were mostly success after success. While the pandemic is trying times, these IPOs operated in the separate world of Wall Street and Bay Street, on a separate timeline, and benefited from the energy poured into an economic recovery. Keep an eye on underlying conditions, and remember: It’s a marathon, not a sprint.
Since its original publication, this piece may have been edited to reflect the regulatory requirements of regions outside of the country it was originally published in.
The opinions, information, data, and analyses presented herein do not constitute investment advice; are provided as of the date written; and are subject to change without notice. Every effort has been made to ensure the accuracy of the information provided, but Morningstar makes no warranty, express or implied regarding such information. The information presented herein will be deemed to be superseded by any subsequent versions of this document. Except as otherwise required by law, Morningstar, Inc or its subsidiaries shall not be responsible for any trading decisions, damages or losses resulting from, or related to, the information, data, analyses or opinions or their use. Past performance is not a guide to future returns. The value of investments may go down as well as up and an investor may not get back the amount invested. Reference to any specific security is not a recommendation to buy or sell that security. It is important to note that investments in securities involve risk, including as a result of market and general economic conditions, and will not always be profitable. Indexes are unmanaged and not available for direct investment.
This commentary may contain certain forward-looking statements. We use words such as “expects”, “anticipates”, “believes”, “estimates”, “forecasts”, and similar expressions to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results to differ materially and/or substantially from any future results, performance or achievements expressed or implied by those projected in the forward-looking statements for any reason.
The Report and its contents are not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Morningstar or its subsidiaries or affiliates to any registration or licensing requirements in such jurisdiction.
This information has been accurately reproduced, as received from Morningstar, Inc. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.
The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.
If you invest in this product you may lose some or all of the money you invest. The value of your investment may go down as well as up. A commission or sales fee may be charged at the time of the initial purchase for an investment and may be deducted from the invested amount therefore lowering the size of your investment. Any income you get from this investment may go down as well as up. This product may be affected by changes in currency exchange rate movements thereby affecting your investment return therefrom. Any decision to invest should always be based upon the details contained in the Prospectus and Key Investor Information Document (KIID), which may be obtained from MeDirect Bank (Malta) plc.