4 Winning IPOs and 1 Loser

We haven’t seen such an appetite for IPOs since the dotcom bubble in 2000. Demand for IPOs tends to correlate with strong performance in growth stocks since they tend to be in the earliest stages of their growth curve. Another factor is an abundance of liquidity in an environment where these growth opportunities are scarce…

Strong IPO Market

In the coming weeks and months, private companies like Airbnb, Palantir, Airbnb, DoorDash, and Wish are expected to go public. In all of 2019, companies raised just over $60 billion in the IPO market. We’ve already eclipsed by that figure by a significant margin this year despite the year not being over and the heavy slate of upcoming IPOs. Additionally, the coronavirus put a freeze on IPOs for a couple of months.

In 2020, IPOs have risen by an average of 23.7% on their first day of trading which is almost double the average gain of 12.8% in 2019 and 13.4% in 2018. The average one-week return in 2020 has been 25.4% which is also significantly higher than 2019’s 15.2% and 2018’s 11.9%.

Beyond short-term performance, IPOs have also performed better on an intermediate time frame as well this year. The Renaissance IPO ETF (IPO – Get Rating) is higher 59% YTD, and it’s up a staggering 145% since the market bottom in March. To compare, the IPO was down 15% in 2018 and gained 31% in 2019.

These types of strong returns are also reminiscent of the dotcom bubble. One major difference between the dotcom bubble is that companies are going public with much larger valuations and established operations.

The IPO market’s momentum continued this week. Four of the biggest IPOs were Snowflake (SNOW – Get Rating), Unity Software (U – Get Rating), jFrog (FROG – Get Rating), and AmWell (AMWL – Get Rating). All of these companies saw big gains on their first day of trading indicating strong demand. Pactiv Evergreen (PTVE – Get Rating) was the exception, as it opened below its IPO range.

Snowflake (SNOW)

SNOW was the most high-profile IPO of the week. and it’s had the strongest performance. The stock was expected to go public between $100 and $110. It ultimately opened around $245 and hit an intraday high of $315 before closing around $250. This gave it a valuation of just over $70 billion. In February, the company was valued at $12 billion.

Investors are excited by SNOW’s prospects due to its growth, high-margins, and expanding total addressable market. Its product is already used by 20% of the Fortune 500, and it’s growing sales by more than 100% on a year over year basis.

Further, it’s outcompeting stalwarts like Microsoft (MSFT), Amazon (AMZN), and Google (GOOG) to help companies organize, manage, and process their data. SNOW looks primed to become the dominant company for managing cloud-based data.

Unity Software

U makes software to help video game developers create and monetize games. It has 1.5 million active creators on its platform, and there have been 3 billion downloads of games created by developers using its game engine tools. The stock was expected to open between $44 and $48 which was an increase from the original range of $32 to $36.

However, the stock opened at $75 which exceeded even the most bullish expectations. Like SNOW, the company has…

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