The Truth About IPO Investing No One Is Telling You
In 2012, four entrepreneurs moved to Palo Alto, California, with the hopes of developing a new technology to support small businesses.
After surveying 200 owners in the area, the group discovered that the No. 1 problem small businesses faced was handling deliveries.
At the same time the group was conducting this research, it stumbled onto another problem. Accustomed to living in a big city where food delivery was the norm, the four members realized smaller cities and towns had little to offer in this realm of service.
Putting two and two together, the group got to work and roughly a year later, Palo Alto Delivery was born. The service was an overnight success, and six months later the company changed its name to DoorDash.
On December 9, 2020, the DoorDash Inc. (NYSE: DASH) IPO opened for trading at a price of $182 per share. The IPO raised $3.4 billion for the company and pushed its market value to about $72 billion.
An amazing story, no doubt. But DoorDash wasn't the only high-profile company that debuted on a major exchange last year. In total, 480 companies hit the market in 2020.
These IPOs raised almost $300 billion globally. In the U.S., companies raised a record $159 billion, according to Refinitiv data.
It's the hottest IPO market since the '90s tech boom.
Source: StockAnalysis.com
The third quarter of 2020 was particularly strong for IPO activity. In fact, it was the most active quarter in 20 years in terms of money raised. Notable cash raises during this surge included the likes of online-insurance company Lemonade Inc. (NYSE: LMND), which raised $319 million, business-to-business (B2B) software company ZoomInfo Technologies Inc. (NASDAQ: ZI), which raised nearly $1 billion, and Snowflake Inc. (NYSE: SNOW), which raised $3.36 billion, among many others.
I strongly believe this trend will continue in 2021, and others do as well. Nasdaq President Nelson Griggs, as reported by Nasdaq.com, notes:
We are lining up a very, very robust first quarter. A lot of deals that were looking at the end of next year, maybe fourth-quarter deals, have moved up to a second-quarter time frame. It's a very open IPO market, stocks are performing well, and we expect that to continue.
Here are some of the most interesting opportunities.
IPOs Slated for 2021
IPO fever isn't going to fade anytime soon, and we could see another record-breaking year in 2021.
Just yesterday, two new companies, Petco Health and Wellness Inc. (NASDAQ: WOOF) and Poshmark Inc. (NASDAQ: POSH), hit the market.
And looking forward, the list of IPOs slated for 2021 puts some nice opportunities ahead of us. Here are three of my favorites:
Roblox - If you have kids, you've probably heard of Roblox. Billed as an online gaming company, Roblox is actually much more than that. It's social media for kids, plus a video game, plus an online marketplace. As of the closing of its last private funding round, the company has raised $520 million and sits at a $29.5 billion valuation. Roblox executives have announced it will go public early in 2021 via direct listing and hope to raise an additional $30 million.Coinbase - Some may think this is a risky, even controversial IPO, but I think it's a no-brainer. Coinbase is the leading cryptocurrency exchange in the U.S. and allows users to invest in a number of popular cryptocurrencies, much like TD Ameritrade and Robinhood allow folks to easily trade stocks in an online format. As of its last funding round in 2018, the company reported it had 35 million customers and an $8 billion valuation. One would only expect, with Bitcoin's insane rise since then, that the company is worth much, much more today. And speaking of Robinhood...Robinhood - Slated for early in 2021 as well, the Robinhood platform has streamlined equity investing and brought stocks to the masses, much like Coinbase has brought crypto to the mainstream. According to Bloomberg, as of its last funding round in September, the company was valued at $11.7 billion and had over 13 million users worldwide. Reportedly, the company is considering a direct stock offering, which is an approach to listing that's become increasingly en vogue with companies.Yet all this aside, there's something important the mainstream media aren't telling you about IPO investing.
And not knowing this information is putting everyday investors like you in dire straits.
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According to Nasdaq.com data, the average IPO gain for 2020 is only slightly over 50%.
Sure, 50% is higher than both the Nasdaq and S&P 500 returns in the same time frame, but a 50% gain isn't really what people associate with a great IPO.
And some of the most anticipated stocks that hit exchanges last year are actually down today. Casper Sleep Inc. (NYSE: CSPR), for example, might make an amazing mattress, but since entering the public sphere 13 months ago, shares are down roughly 52%.
Source: StockCharts.com
Moreover, pre-IPO fever can inflate a company's initial market value well beyond its true book value, which then erases any gain potential for retail investors on IPO day.
The second part of the DoorDash IPO story highlights this perfectly.
DoorDash's IPO raised an astronomical amount of money and yes, shares did jump 86% from the company's original price offering of $102. But the earliest you and I could buy shares of DoorDash was at 12:45 p.m. on December 9. By that time, the price had ballooned to $182. That wasn't a fair price.
And as of January 5's open, shares had fallen to $138. Even after a massive rally of over 24% between January 12 and 13, IPO buyers were only up about 19.5% as of noon Thursday.
The truth is the real winners on DoorDash were the ones who owned shares before the company went public. Employees of DoorDash who took advantage of the company's stock purchase plan were able to claim shares at $86.70 this year, according to the company's recent S-8 filing with the SEC.
And the biggest winners on DoorDash were its private investors.
According to an SEC filing from October 2015, DoorDash issued institutional investor Riviera Investments LLC a warrant to purchase up to 21,066 shares of common stock at the exercise price of $7.46 per share. I'm still trying to track down whether Riviera has exercised this warrant yet... but if, for example, that warrant were cashed in as of noon Thursday, it would have locked in a gain of over 2,800%.
Of course, this is wildly unfair to regular investors like you and me who were locked out of these ground-floor opportunities.
The good news, and why I'm writing to you today in the first place, is these private investing opportunities, like Riviera's mentioned above, are now open to retail investors like you and me.
This is a monumental change in the way regular folks can invest and it offers you a chance to get in on the true ground floor of a great company.
That's why my colleague and renowned private market strategist Jeff Siegel is hosting an urgent special event on Thursday, January 21, at 3:00 p.m. EST that will reveal how you can claim your shares of the most impressive startups and private companies well before they ever debut on the market.
We're talking about the chance to learn how to score triple- and potentially even quadruple-digit gains that could change your life in an instant.
Claim your spot today before this special event fills up.
To your wealth, Sean McCloskeyEditor, Energy and Capital After spending 10 years in the consumer tech reporting and educational publishing industries, Sean has since redevoted himself to one of his original passions: identifying and cashing in on the most lucrative opportunities the market has to offer. As the former managing editor of multiple investment newsletters, he's covered virtually every sector of the market, ranging from energy and tech to gold and cannabis. Over the years, Sean has offered his followers the chance to score numerous triple-digit gains, and today he continues his mission to deliver followers the best chance to score big wins on Wall Street and beyond as an editor for Energy and Capital.
@TheRL_McCloskey on TwitterP.S. Jeff gave me a sneak preview of what he's going to show you during his upcoming special event on Thursday, January 21, at 3:00 p.m. EST, and I have to say this is one of the most impressive new approaches to investing I have ever seen.
If you're looking for the chance at real wealth, you won't want to miss Jeff's presentation.