Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
The hottest sector in the market
Airbnb, one of the largest online home rental companies, made a spectacular debut on the Nasdaq last Thursday, with shares more than doubling to give a US$100 billion valuation on its first day of trade. Shares in Airbnb began trading on Thursday at US$146 per share (A$194), rising 115% above its IPO price of US$68, and closed the day at US$144. Those that were lucky and brave enough to capture a slice of the IPO will be punching the air in delight.
If you missed the Airbnb opportunity, don’t worry. There’s a long list of tech stocks lining up to list. Both Wall Street IPOs and our local floats are running red-hot, with investors just wanting in on the action. A buying spree took place in the DoorDash IPO on the NYSE last week, sending its share price up 86% on its first day of trade, giving it a US$60 billion ($78.9 billion) valuation. The extraordinary enthusiasm for these sorts of companies is baffling. The Wall Street Journal says, “valuations of recent IPOs are at their highest levels since the dot-com bubble, relative to the companies’ revenue, sparking concerns among investors about the level of froth.” So much so, that videogame company Roblox Corp and fintech Affirm Holdings have both pushed back their IPO listing date to next year, so that they can make sense of this market.
DoorDash is worth almost as much as General Motors, and Airbnb is barely profitable yet valued at more than FedEx. What’s happening here suggests that investors are valuing tech firms based on years of exponential growth that is likely to occur some time in the future. Many of the world’s valuable tech startups have never been profitable, yet raised billions in IPO dollars to focus on rapid growth in early years, burning through cash to expand. Uber and Snapchat are among those that have yet to make a profit.
Investors have become more and more willing to tolerate negative cash flows for increasingly long periods of time from tech start-ups. And there is also an element of speculation. Post-pandemic, first-time retail investors are out chasing big returns from growth stocks that show potential. The IPO frenzy isn’t confined to just Wall Street either. The last few months have seen a spike in listings on the ASX in tech, healthcare, cannabis, healthcare, mining, and e-commerce. In the list below, we have listed the top 25 stocks to date in 2020.
Taking out the top two spots were tech names, including neobank Douugh (ASX: DOU), which managed an eye-watering 900% return on its original listing price of just 30 cents; although it was a “backdoor” listing, using the shell of failed telecommunications company Ziptel. In second spot was COSOL (ASX: COS), returning a cool 235% on its original listing price of 67 cents. COS is a global, professional enterprise asset management service provider, specialising in providing strategic advice and practical delivery; sounds important, doesn’t it.
If you’re looking to get a bargain, buying into a company IPO during 2020 post-pandemic has been a rare opportunity for investors to cash-in on the IPO boom which is creating exponential returns in a short space of time. According to Bloomberg Finance, the average IPO in the US has delivered a return of 37% in 2020. With momentum more than likely to continue through the rest of the year and into early 2021, now is as good a time as any to take a dip and explore IPOs. Below is a list of both Australian and US upcoming IPOs for the next few months.
Because there is a long list of upcoming IPOs due to list on the Nasdaq, we have selected some of the IPOs that we think will be highly anticipated and should drive investor demand.
Some insight into the large US businesses set to list includes:
- Affirm Holdings postponed its listing due to the red-hot IPO market. The Buy Now Pay Later lender is America’s answer to AfterPay. The fintech allows consumers to split purchases into instalments. Revenue to the three months ended Sept. 30 almost doubled to about US$174 million. The company is in a net loss of US$15.3 million.
- Roblox – Tipped to be a ‘blockbuster’ IPO, the company runs a cloud-based platform for creating and playing casual games featuring 3D virtual worlds. Many of the games can be played on PCs, iOS/Android devices, and Xboxes. Roblox also pushed back its listing date to early next year.
- Wish – Is due to list this week. E-commerce company Context Logic, which does business as the website Wish, is an online shopping website. The platform links merchants with prospective buyers as well. On revenue of US$1.75 billion, the company posted a loss of US$176 million. It’s also tipped to be a big IPO.
- Bumble – The popular US dating site, which markets itself as empowering women by letting them make the first move, is listing early next year with a valuation in the likely range of US$6 billion-$8 billion. Bumble competes with Match Group (US$30 billion market cap), which owns Tinder, Match, and OkCupid.
- Robinhood – this could be the big one for 2021. The stock trading platform has hired Goldman Sachs to lead its IPO and has already amassed a huge army of followers who joined during the coronavirus pandemic. Founded in 2013, the company reportedly closed a US$660 million funding round in September, for a valuation of around US$11.7 billion. With a customer base of 13 million, sources say it could easily be valued at over US$20 billion when it lists.
If there is one takeaway from the list of companies seeking to float, it is the incredible difference in size and quality in the US compared to Australia. On the one hand, you are seeing globally recognised names like Airbnb and Bumble seeking growth capital despite being loss-making businesses; and on the other, companies as small as A$20 million to $50 million doing the same in Australia. The term ‘buyer beware’ has never been more applicable than in the small-cap IPO market in Australia: there is a good reason why this is still known as the ‘Wild West’ of the stock market.
