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IPOs Have Bounced Back

By Matt Salm, Investment Analyst


IPOs have long been a hot topic in investing. When startups or other privately held businesses want to become publicly traded companies, they typically undergo an initial public offering, or IPO. These events are known for their sometimes dramatic consequences.

In rare instances, a company’s value can double or triple the first day it goes public: last year Beyond Meat made headlines when its share price surged 163% on its first day of trading, the largest 1-day “pop” in a US company since 2000.

IPOs had a rough start to 2020, though. After disappointing returns following the public listing of well-known companies such as Lyft and Uber, enthusiasm for investing in startups waned. This came to a head when WeWork, an innovative office space company, faced a financial calamity leading up to its planned IPO. Once valued at nearly $50 billion, the company saw its valuation fall all the way down to $2.9 billion at the height of the coronavirus pandemic.

WeWork’s story was part of a broader narrative. Many investors believed that tech unicorns (companies valued at over $1 billion) were overvalued, and the US IPO market went cold for several months.

However, as tech stocks such as Amazon and Netflix have soared during the pandemic, interest in tech IPOs has enthusiastically returned to Wall Street. nCino “popped” 195% on its first day of trading in July, dethroning Beyond Meat as the hottest IPO of the last two decades. And Airbnb drew waves of attention on Wednesday when they announced their IPO filing.

An optimistic onlooker might comment that the stay-at-home economy has accelerated the adoption of many technological innovations, which makes investing in tech startups a more attractive prospect. A cynic might remark that with bonds yielding almost nil and large cap stocks soaring to all-time highs, investors are left with few attractive options: perhaps interest in IPOs has only picked up because all the alternative investments are so unattractive. But whatever the reason, the trend is clear: IPOs have bounced back from their stumble earlier this year, and they’re not showing any signs of slowing down.IPOs have long been a hot topic in investing. When startups or other privately held businesses want to become publicly traded companies, they typically undergo an initial public offering, or IPO. These events are known for their sometimes dramatic consequences.

In rare instances, a company’s value can double or triple the first day it goes public: last year Beyond Meat made headlines when its share price surged 163% on its first day of trading, the largest 1-day “pop” in a US company since 2000.

IPOs had a rough start to 2020, though. After disappointing returns following the public listing of well-known companies such as Lyft and Uber, enthusiasm for investing in startups waned. This came to a head when WeWork, an innovative office space company, faced a financial calamity leading up to its planned IPO. Once valued at nearly $50 billion, the company saw its valuation fall all the way down to $2.9 billion at the height of the coronavirus pandemic.

WeWork’s story was part of a broader narrative. Many investors believed that tech unicorns (companies valued at over $1 billion) were overvalued, and the US IPO market went cold for several months.

However, as tech stocks such as Amazon and Netflix have soared during the pandemic, interest in tech IPOs has enthusiastically returned to Wall Street. nCino “popped” 195% on its first day of trading in July, dethroning Beyond Meat as the hottest IPO of the last two decades. And Airbnb drew waves of attention on Wednesday when they announced their IPO filing.

An optimistic onlooker might comment that the stay-at-home economy has accelerated the adoption of many technological innovations, which makes investing in tech startups a more attractive prospect. A cynic might remark that with bonds yielding almost nil and large cap stocks soaring to all-time highs, investors are left with few attractive options: perhaps interest in IPOs has only picked up because all the alternative investments are so unattractive. But whatever the reason, the trend is clear: IPOs have bounced back from their stumble earlier this year, and they’re not showing any signs of slowing down.

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