The IPO market has been extremely active recently, with high-profile companies like Airbnb (NASDAQ: ABNB), DoorDash (NYSE: DASH), Snowflake (NYSE: SNOW), and many more going public in 2020.
However, one of our experts thinks 2021 could be just as interesting in the IPO world, especially when it comes to the huge number of special purpose acquisition companies, or SPACs, that are on the hunt for targets to take public. In this Jan. 14 Fool Live video clip, Fool.com contributors Brian Feroldi, Brian Withers, and Matt Frankel, CFP, discussed what they’re watching in the IPO market in 2021.
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Brian Feroldi: The thing that I’m going to be keeping a close eye on, especially in the first half of the year is really the IPO market. We have seen so many companies come public by the traditional way, as well as through SPACs. Their stocks are just going bananas as soon as they come. Here’s a great resource for everyone to bookmark, it’s called IPOScoop. This is just basically a list of the last 100 IPOs that came out. The ticker and then the offering price, and then what happened to the stock price essentially the first day. Look at this, a firm which I think we’re going to deep dive into on Industry Focus tomorrow, 100% return in one day, 75% return, 140% return, 70% return. It’s not hard to go back in time and just see these enormous one day pops. Oh, my gosh, 490%? Talk about a bad job pricing. Excuse me. [laughs] That’s the total return since the first day pop. I was not an investor at the end of the DotCom craze and like 9899, but one of my big takeaways from listening to Jim Cramer was he basically said, in the year 2000-ish, deals were still coming like crazy, and it was a sign of the top that instead of stocks coming public and then their price immediately jumping, nothing happened after they came public, or in some cases, their prices actually fell. Will that repeat itself in 2021? I don’t know, but I do know that a whole bunch of companies are rushing to come public right now, which makes complete sense given the valuations that they’re garnering. Just take Roblox as an example. Roblox is planning on coming public in December at an $8 billion dollar valuation, and they just raised the money in the private markets, like $20 billion or $30 billion, or some huge number. That’s like a 4X valuation increase in the matter of a month. How long can that go on for? I don’t know and I don’t see what’s going to necessarily stop it, but I’m going to be looking at the IPO markets and tracking to see, are investors still bidding these things up as soon as they come public? Is there still an enormous flow of deals coming public? If that was to slow or stop, that might be something that gives me pause. That’s something I’m going to be definitely watching.
Matt Frankel: Brian, I have a question for you. You’ve brought up SPACs. I’m a SPAC investor. But I’m worried that the SPAC market may have been a little overheated, just a little. [laughs] The reason I say that, let me just ramble off a couple of statistics real quick. There were more than 200 SPACs that went public last year. That’s an often quoted statistic. But I just looked at my TD Ameritrade account right now, 30 SPACs went public last week, [laughs] 13 so far this week, four new SPACs went public today, and eight more are going public tomorrow. Will these SPACs be able to find acquisition targets? How many SPACs are too many?
Feroldi: I don’t know. [laughs].I don’t know. The thing about a SPAC is that is just a vehicle for coming public, so they still have to go out and acquire companies. That’s just investors being excited about the broad category, but they still have to go out, find a target, take it public. If more companies legitimize their willingness to actually go public via a SPAC, that could easily increase the supply, and I think Chamath is doing a wonderful job about making them so that it’s not like the scarlet letter if you go public via a SPAC. What’s going to happen there? I don’t know, but that’s a crazy system you just rambled off.
Frankel: Well, a SPAC is basically a bet on management and I see the current SPAC market like the tech market of the late ’90s. There are going to be a handful that are really successful, most of which are run by really good managers. When you think back to the tech companies in the ’90s that are still around today, the managers are off-the-charts good. You think like Amazon (NASDAQ: AMZN), Jeff Bezos, things like that. I think there are opportunities. You really have to make sure the manager is an A-lister, in my opinion. Both Brians, are you SPAC investors?
Brian Withers: No. I rarely purchase IPOs in the beginning and wait for the hype to pass. The other thing it seems to me is over the last decade, that the length of time companies wait before they go public, it’s much, much shorter. Not only are they unproven in the public markets, but they’re relatively unproven just as a corporation. It’s interesting to see all this rush to go public and it’ll be interesting to see how it shakes out.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brian Feroldi owns shares of Amazon. Brian Withers owns shares of Amazon. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Snowflake Inc. The Motley Fool recommends Airbnb, Inc and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.