Investors’ Appetite for Risk Returns: IPOs Set New Records
The global pandemic may have wreaked havoc on businesses around the world, but it didn’t deter several fast-growing start-ups from making their debut on the major stock exchanges.
In the past six months, there have been more than 40 initial public offerings, or IPOs.[1]
The 2020 class of IPOs has included several names that you’ve likely seen touted by the financial media: Lemonade, Inc. (LMND), Vroom, Inc. (VRM), ZoomInfo Technologies, Inc. (ZI), Agora, Inc. (API) and Nikola Corporation (NKLA).
Interestingly, Wall Street’s excitement and appetite for IPOs this year caused many of these stocks to surge, driving their shares to record-breaking one-day gains. Case in point: Lemonade, Inc.
Lemonade is not your traditional insurance company. Yes, it’s still fully licensed and regulated, underwriting, pricing and selling policies, as well as paying claims. But Lemonade removes the paperwork and is powered by artificial intelligence (AI). It also takes a flat fee from its customers’ typical monthly premium to pay their claims, and any unclaimed money that’s leftover at the end of the year is donated to specific causes in the company’s annual Giveback.[2]
Lemonade’s unique business model certainly attracted investors’ attention. During the stock’s debut in early July, shares soared more than 140%. That represents the strongest IPO in the U.S. this year.[3] The IPO offered 11 million shares at a price of $29 per share[4], and the stock traded as high as $70.80 on its first day of trading before closing at $69.41.
Agora, Inc. also had a stunning debut that rivaled Lemonade’s one-day surge. At the end of June, Agora shares jumped 145% to $49.19, up from the IPO price of $20 per ADS.[5] The reality is that the Chinese company offers services that are essential to the current business climate.
Agora offers a Real-Time Engagement Platform-as-a-Service (RTE-PaaS) that enables real-time video and voice calls, as well as real-time messaging and recording.[6] And, with more people working remotely amidst the global pandemic, its services have been in top demand, which sent many investors clamoring to its stock during the IPO.
Another tech company, actually the first tech IPO of 2020, ZoomInfo Technologies, Inc. attracted its fair share of investor attention at the beginning of June. Cloud-based software companies overall have been resilient during the global pandemic, which boded well for the ZoomInfo Technologies’ IPO. ZoomInfo Technologies offers a platform for B2B data, as well as marketing, sales and recruitment services.[7]
ZoomInfo Technologies IPO was initially priced at $21 per share. ZI skyrocketed more than 60% to around $34 per share in its first trading day on the NASDAQ, netting more than $900 million.[8]
Considering the tough economic climate, the next two IPOs that we’ll discuss moved their debuts forward with the odds stacked a bit against them as both operate in the car industry. But that didn’t stop investors from snagging shares during their first day of trading.
Vroom, Inc. shares hit the gas, rising more than 100% from the stock’s $22 per share IPO price to $45 per share. That raked in about $500 million.[9] Vroom is a prime example that people are starting to purchase even big-ticket items online, especially amidst the pandemic. Vroom provides an online platform where you can buy, sell and trade used vehicles. The company boasts more than 3,000 available cars in more than 400 different makes and models.[10]
Nikola Corporation, on the other hand, is focused on taking advantage of the electric vehicle (EV) and zero-emissions trend. The company introduced its first fuel-cell semi-truck, and is developing an electric pick-up truck, Nikola Badger. Interestingly, Nikola hasn’t sold a single truck yet, but that hasn’t deterred investors. [1]
During the stock’s first few trading days on the NASDAQ, NKLA soared from its IPO price of about $35 per share to as high as $73.27 per share. The initial surge drove NKLA’s market cap to more than $30 billion, which exceeded the value of Ford Motor Company (F) and Fiat Chrysler Automobiles N.V. (FCAU).[11]
Since each of their debuts, the aforementioned IPOs have come back to earth and traded a bit sideways recently. LMND is trading around $82 per share, API is at about $46 per ADS, ZI is priced around $39 per share, VRM is trading at about $44 per share, and NKLA shares are sitting around $51 per share.[2]
Where they go from here all depends on profitability—and we’ll likely gain more insight into their business financials in the current earnings announcement season.
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[1] https://finance.yahoo.com/news/the-ipo-class-of-2020-122720137.html
[2] https://www.lemonade.com/faq#service
[7] https://www.zoominfo.com/business/about
[10] https://www.vroom.com/about
[11] https://www.marketwatch.com/story/electric-truck-nikola-goes-past-ford-in-market-cap-2020-06-09