IPO Market: Still Hot
The IPO market went absolutely wild last year.
Despite the COVID-19 pandemic and its devastating economic effects, IPOs raised a whopping $150 billion in 2020 - including more than 20 companies that raised over $1 billion each.
Among them, Airbnb, DoorDash, and database software company Snowflake all raised over $3 billion in their IPOs.
Meanwhile, Bill Ackman's new special purpose acquisition company (SPAC), Pershing Square Tontine Holdings, underscored the IPO bull market, raising $4 billion in its first offering.
2020 was the best year for the IPO market since the dot-com boom.
And 2021 is setting up to be even bigger.
Jeff Siegel, investment director for the Weekly Score newsletter, sent me a private message late last week saying, "I can't believe this. There are already at least eight IPOs looking to raise nearly $5 billion this year. It's only been two weeks!"
For some investors, these IPOs are winning lottery tickets.
Shares of DoorDash flew over 80% higher on its IPO debut...
Then Airbnb roared over 110% following its first offering...
Snowflake shares spiked 115% higher on its IPO...
Shares of used car retailer Vroom spiked nearly 120%...
Big data firm Seer rocketed almost 200%...
And the list goes on and on.
Some investors get very rich. But the key word is "some."
Jeff tells me:
There are a lot of pitfalls in the IPO market for the average investor. The biggest, though, is probably believing all the hype. Now, don't get me wrong, hype in itself is not all bad. Some hype is good. It's good to have high expectations. But like anything else, too much is too much. There are high expectations, and then there are impossible expectations. Unfortunately, many inexperienced investors believe the impossible. Then they get burned.
Jeff's right. Because despite big one-day gains, IPOs don't always work out so well over the long term.
Back in 2011, Groupon made its IPO at $28 per share, giving it a $17.8 billion market cap. It was the largest U.S. internet company to IPO since Google. And the stock was a financial darling for months leading up to the offering. Everyone was talking about Groupon.
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But the party didn't last long.
In its first year of trading, shares of Groupon saw an 85% plunge.
Sometimes hot IPOs will even see losses on their first offering dates. Back in 2019, Uber was an investment darling as it planned to take the company public. The company was expected to price its IPO between $44 and $50 per share. It ended up debuting on Wall Street for $42 - and then closed more than 7% lower on it first day of trading.
Matt Egan of CNN Business wrote in May 2019, "Uber and Lyft were two of the most highly anticipated IPOs in recent memory. And both were duds."
"Buying a hot IPO stock after it runs higher is like catching a rocket," Jeff Siegel explains. "It might keep flying higher. Or it blows up in your face.
"The real money to be made in the IPO market," Jeff continues, "comes from investing in pre-IPO shares. But unless you're very wealthy or very well-connected, you won't have access to most of those opportunities."
Later this week Siegel tells me he will be announcing an investment webinar in which he will discuss the current IPO market and give details on what he calls some of the "under-the-radar" action. He says he can't give any specific information on the event just yet. But he promises something big is up his sleeve. So be on the lookout for that from Energy and Capital later this week.
Until next time, As an editor at Energy and Capital, Luke's analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing's Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor's page.
Luke Burgess