In today’s Money Morning…big tech is still where it’s at…a deeper look…it’s all valuable, new information for you as an investor…and more…
The COVID-19 pandemic put the handbrake on a number of big-name initial public offerings (IPOs) due earlier this year.
New IPOs were down 19% in the first half of 2020 compared to the year before.
However, with economies opening up and the stock market rocketing higher, there are a raft of major IPOs set to hit by the end of the year.
And some look very interesting.
The success — or otherwise — of these listings could be a big clue on where investor money is heading.
Let’s have a look at some of the main ones we’re watching…
Big tech is still where it’s at
It’ll be no surprise to you that a lot of these big IPOs are in technology companies.
The most exciting one in my book is the listing of holiday rental company, Airbnb.
They were all set to list in March when the coronavirus hit and virtually put an end to global travel — and in turn their business.
It’s been all hands on deck since as the popular website put their plans on the backburner and tried to ride out the storm.
They must be seeing daylight now, because in August they quietly filed the paperwork to get ready to go public again.
They’ll be hoping that there are no more shutdowns again and that a vaccine can be created as soon as possible.
They’re valued at around US$18 billion, according to analysts.
Another big crowd favourite is the IPO of stock investing app Robinhood.
The trading app has upended the entire broker market by making trades free.
They make money by selling order flow to high-speed trading firms and interest on cash balances.
This model has certainly helped Robinhood become a favourite with the next generation of investors.
And some say it’s cashed-up, crazy millennials punting on the likes of Tesla that are responsible for the current stock market melt-up!
I’m not too sure about that narrative.
(Or as a millennial might say: Cool story bro…)
To me, they’re a convenient scapegoat to hide the fact that our economic masters are pulling the rug from under the current monetary system.
The devaluation of money is actually the thing propelling all other assets higher.
But that’s a story for another day…
Anyway, Robinhood is set for a potential $11.2 billion valuation when its IPO goes live, probably by the end of the year.
Food delivery app Doordash is another highly anticipated IPO due soon.
They’re reported to have twice the market share of Uber Eats in the US right now and some big-name backers like Softbank and Sequoia, who will be keen for a successful listing.
I don’t know about you, but takeaway food has certainly been a big winner through the COVID lockdowns with my family!
The company has a $16 billion valuation estimate right now.
But the biggest IPO in the offing isn’t a US company; it’s a Chinese one.
The $30 billion listing of Ant Financial is set to be one of the biggest IPOs in history.
To clarify, that’s $30 billion cash they’re seeking to raise at a total company valuation of $300 billion — or twice the value of Goldman Sachs and Square put together!
It’s certainly got the investment community excited, with fund manager David Ellison recently telling Quartz Magazine:
‘“I’m hoping to buy some of this Ant Financial, if I can,” said Ellison, a portfolio manager at Hennessy Funds in Boston. “It’s the Amazon of financial services.”’
It’s a timely reminder of the strength of the Chinese fintech sector these days…
A deeper look
IPOs are certainly an interesting place for investors to keep their eye on. It’s often where the latest hot trends and big new stories can be found.
But they can be risky places to invest if you’re not careful.
There’s often a lot of hype around new IPOs, and usually that means they’re overvalued in the short term as eager buyers outbid each other to get their mitts on some stock.
Also, there’s a well-worn trading tactic of seeking stag profits — the process of making a quick buck on the listing by buying and selling fast — and that can mean IPOs pump and dump early on.
See the 2017 listing of Snapchat Inc [NASDAQ:SNAP], if you want a classic example.
It listed to much fanfare at $17 per share, quickly went to $23, before plummeting over two years to a low of $5.
Check out that mad journey here:
Today it’s soared back to new highs of $43, but it was a turbulent path to get here.
This type of price chart is fairly common — in my experience — in hyped-up IPOs. Patience can sometimes be the better tactic.
However, there’s no question IPOs can be a great place to find good long-term investments, especially in new industries that are starting to mature.
But the less hype the better, in my opinion.
At a deeper level IPOs can also provide you with clues on market sentiment.
How well supported an IPO is — or isn’t — can tell you what areas the big funds are keen on. So even if you don’t invest in the IPO, you may be able to find similar companies to invest in elsewhere.
And the listing process itself can unveil updated data on the various business models emerging in new industries.
It’s all valuable, new information for you as an investor.
If you can work out how to use it best.
Editor, Money Morning
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