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IPOs in 2021: Hits and Misses

Fresh faces on the share market are injecting new life into it, but some IPOs are struggling. Chris Smith of CMC Markets looks at how last year’s initial public offerings are going.

16 February 2022

Last year was a big year for stock markets. New listings came to the market in record numbers in 2021, because central banks were stimulating economies, pandemic restrictions were easing, and shares were soaring to historical highs.

An IPO or initial public offering is where a business becomes a public company by selling shares on the share market.

To grow, share markets need new blood, so it’s a good sign when more companies ‘list’ on the stock exchange to get funds to invest in their firms.

These keen new entrants tend to make a splash in the market when they arrive, because publicity drives their share price higher.

The number of new IPOs worldwide in 2021 increased by 64 per cent year-on-year to 2,388, says Ernst & Young. Moneywise, global IPO issues grew by 67 per cent to US$453 billion.

Locally, we’ve seen the same. It’s been a a busy year for company IPOs on the New Zealand Stock Exchange (NZX), and a few New Zealand-founded businesses have listed on US stock exchanges.

Sexy tech shares

It’s been a record year for new companies entering the market but, frankly, the performance of these companies has been hit and miss.

We haven’t seen too many winners in terms of performance unless you bought and sold very quickly in the technology arena.

More than 50 US tech companies went public this year through an IPO, SPAC (special-purpose acquisition company) or direct listing, but only one is less than 20 per cent below its high stock price.

More than 20 of them lost half their value.

Winners

Robinhood: As one of the winners from the trading boom, Robinhood Markets was one of the most hotly anticipated IPOs of the year.

The US share broker app, similar in style to Kiwi company Sharesies, was key to the wild moves in GameStop and AMC Entertainment in January 2021 which burnt a whole lot of short sellers.

Many investors were optimistic it had resolved its early liquidity problems, which caught the attention of US authorities.

On its debut, shares began trading at US$38, reaching US$84, but fell below US$20 as the trading mania from early 2021 waned, losing 70 per cent of their value near the end of 2021.

Its total revenue for the third quarter of the financial year was US$364.9 million, well short of US$423.9m estimates.

Rivian: Electric vehicle startup Rivian Automotive was the most notable IPO of the year, beating the market caps of Ford and Volkswagen.

Without any discernible revenue, the company managed to get a US$179 IPO price from an initial $US78 in the first week of trading.

The price has dropped marginally since then, but Rivian has a market capitalisation of $US100b.

For a company that has yet to earn any money, and is a long way from making a profit, buying shares in it is a big gamble on its future. Most shareholders are locked in until mid-2022.

Allbirds: Kiwis are avidly watching this IPO, which had its debut on the Nasdaq exchange in November, because Allbirds was cofounded by former All Whites captain Tim Brown.

Shares started trading at US$21.21 and closed at US$28.64, making a market capitalisation of US$4.1 billion. It raised more than US$300 million in its IPO, but the cost of opening stores has dragged heavily on its profit margins.

It has yet to return a profit, making a loss of US$13.8 million in earnings for the third quarter of the financial year. As investors cashed out, its share price plunged by 75 per cent to US$16.

That said, its sales have grown from the previous year by 33 per cent, to US$62.7 million. It may be a while before the team can lift the stock to more buoyant levels, but its sights are on the long term, investing in new materials and building a sustainable supply chain.

Losers

Didi Chuxing: This ride-hailing giant became the second largest Chinese company to IPO in the US, behind Alibaba.

The company’s stock closed at US$14.14 on its first day of trading, with a market capitalisation of US$67.8 billion. Just two days later, the Cyberspace Administration of China (CAC) launched an investigation into Didi over violations of data privacy and national security laws and its share price plunged over 20 per cent to US$12.55.

More recently, Chinese regulators ordered Didi to delist from US stocks. It’s now poised to deliver the worst performance in initial months of trading for any major Chinese listing, with shares down by 44 per cent since in June.

Rocket Lab: Another company keenly watched by Kiwis, Rocket Lab was founded by Peter Beck in 2006. It successfully closed a SPAC merger with Vector Acquisition and made its debut on the Nasdaq in August.

It was valued at US$4.8 billion in equity and received US$777 million in gross proceeds. The IPO price was US$11.58, and it closed at US$10.43 with a 9.9 per cent loss on its first day of trading.

In December 2021, it made its fourth major deal in the past 12 months by acquiring SolAero, a New Mexico maker of solar components for space, for US$80 million.

It has bold ambitions to compete with Elon Musk’s SpaceX and grow its rocket launching business revenue to US$915 million by 2027.

My Food Bag: The Kiwi meal subscription service became the biggest company to list on the NZX in seven years, when it made its debut in May.

Shares started trading at NZ$1.85 and closed at NZ$1.7, raising NZ$315 million. Ahead of the NZX listing, it was valued at NZ$450 million.

Its first-half profit jumped 25 per cent, with a net profit of $NZ9.4 million in the six months to September. Shares were trading around NZ$1.2 in early December.

Waiting in the wings

With central banks planning on tightening monetary policy, and the Chinese overhauling their regulations on tech stocks, this year may be quieter for new listings. Locally, there are murmurs of a few companies listing, but time will tell whether these go ahead.

2degrees: The telco said last year it was considering listing on both the NZX and ASX. It’s owned by American firm, Trilogy International Partners, and is listed on the Toronto Stock Exchange.

At the end of last year, there was a potential merger with Orcon on the cards, so its IPO plans are on hold.

Trade Me: The digital marketplace site was acquired by UK private equity firm Apax Partners for NZ$2.56 billion in May 2019.

After a three-year absence, it is considering taking the company public again this year with a more than NZ$3 billion float on the ASX and NZX.

Reddit: The platform that helped fuel the meme-stock frenzy has confidentially filed for an IPO expected to be over US$10b market cap.


Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The author does own shares in some of the securities mentioned.

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