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.
Investing Is a Marathon, Not a Sprint
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.”
2020’s Biggest IPOs
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.
It’s a Bull Market, Of Course
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.
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