An IPO is like a negotiated transaction – the seller chooses when to come public – and it is unlikely to be a time that’s favourable to you – Warren Buffet.
An initial public offering (IPO) is the first time a company offers its shares for sale to general investors. Once the IPO is done, the shares of the firm are listed and can be traded freely in the open market. Moving forward to 2021, there is a solid pipeline of companies preparing for capital raises through IPOs, with Airbnb expected to lead the headlines.
Some of the IPOs that were launched last year performed great during the initial days, but the lockdown announced damaged the share price significantly. While comparing to 2019, the public listings witnessed drastic drop this year as the companies are finding it decidedly more difficult to predict financial performance over the coming year and beyond.
Here are the successful and unsuccessful US IPOs in 2019:
After a big drop-in IPO activity in the first half of 2020 due to the COVID-19 pandemic, the listing activity certainly picked up. Many more companies are racing to go public after the stock market came roaring back from May onwards.
These are the few notable IPOs launched after the second quarter of 2020.
- Lemonade (NYSE: LMND)
- Unity Software (NYSE: U)
- Warner Music Group (NASDAQ: WMG}
- Snowflake (NYSE: SNOW)
- Eargo (NASDAQ: EAR)
- Palantir Technologies (NYSE: PLTR)
- CureVac (NASDAQ: CVAC)
- Berkeley Lights (NASDAQ: BLI)
Among these above IPOs, California based Cloud-based data warehouse firm Snowflake was the real crowd winner. The IPO ended up being the largest software IPO ever, raising nearly $3.4 billion and being valued at $33.2 billion before trading started on the public markets. The stock surged 104%, opening at $245 per share and closing its first day of trading at $253.93, nearly 112% above its IPO price.
Factors to consider before investing in an IPO
Understand the purpose of raising funds: As we know even there are different techniques to raise funds including acquisition, but IPOs are considered to be the best way to raise funds for the company. So, try to look for the answer, where will the funds be used? This will help you to know the direction the company will take.
Check the Past performance and background of the Company offering the IPO: Understand the business and its prospects, financials, and competitive landscape.
Understand the valuation of the company: Use different techniques like return on equity ratio and price to earnings ratio to know the valuation of the company and compare the results with existing companies in the same industry.
Review the Profitability projections: consider factors like revenue growth, profitability or profit potential and competitive advantages.
Before pumping a huge sum of money into IPO, you should be aware that not every upcoming IPO is a great opportunity. So, it is important to understand some basics and the timing because a poorly timed IPO can be difficult to overcome.