Research Blog

Capitalizing on the IPO Buzz

Executive Summary

  • IPOs were a popular investing theme over the past 4 quarters as the global economy surged following the depths of the stock market crash
  • Traders must be nimble in today’s IPO market, and tracking key IPO dates is critical to managing risk
  • Wall Street Horizon profiles one popular social networking app that has seen its stock price decline ahead of two important corporate events

Record Volume of Priced IPOs

The IPO market has been a roller coaster over the last year. With ample liquidity in the public marketplace and high amounts of dry powder, many founders have gone the route of an initial public offering as an exit strategy. The pandemic also resulted in a very high number of new small businesses, therefore, we expect more growth in the IPO market over the coming years.

In Figure 1 below, Wall Street Horizon data reveal a surge in priced IPOs beginning in Q3 2020 that continues through this year. While the volume of priced IPOs continues to run high, investor interest in the secondary market has subsided.

 Figure 1

Source: Wall Street Horizon, IPO Scoop

 Ironically, as so often is the case in the stock market, what was once hot is suddenly “not”. Take IPO companies since the start of 2020. The Renaissance IPO ETF (IPO) surged in the months following the COVID-induced stock market crash in Q1 2020. Simply buying up shares of newly public firms was a winning strategy. Perhaps the meme stock mania of late January marked peak euphoria as the ETF topped out a few weeks later on February 12. Also marking the top was a particular IPO on February 11 which we’ll profile later: Bumble (BMBL).

A New IPO Market

Today’s IPOs are not like those of the 1990s. An IPO firm in 2021 is likely to be relatively more mature and larger in market cap versus the microcap IPO surge witnessed during the dot-com bubble. Investors should also be aware of the price-performance trends of new firms that come to the public market. Of course, a first-day share price pop is commonplace, but returns going out several months and years tend to be lukewarm at best.

Investor Flows and Sentiment Supersede Fundamentals

What’s more, traders must be aware of important corporate events that take place in the days, weeks, and months following an IPO debut on an exchange. Among the many lessons 2020 and 2021 have taught portfolio managers is that investor flows often matter more than fundamentals. For example, take a look at shares of GameStop in January and June for price-action that was driven by immense buy order volume and not by such fundamental metrics as its price to book value.

Knowing When Risk Can Hit: IPO Dates

At Wall Street Horizon, we cover more than 40 corporate event types on over 9,000 companies worldwide. For traders, IPO dates are must-know events. By the nature of IPOs, the market is left in the dark on the pricing of an IPO until the evening before the commencement of trading, but once trading begins it sets off a schedule of corporate events to keep on your calendar.

We offer the following IPO information: filing date, company sector, lead managers, shares to be offered, estimated volume, trade date, quiet period end date, and lockup expiration. Let’s analyze one such company that has an upcoming lockup expiration.

IPO Analysis: Bumble Inc (BMBL)

  • Bumble, the popular dating and friend-finding app, had a big pop on its February 11 Nasdaq launch. Ahead of the offering date, we notified clients of the company’s January 15 Filing Date.

  • Then came the hoopla around the first day of trading. We alerted clients to not only the IPO date of February 11, but additional details such as the number of shares offered, IPO price, and the SCOOP Rating. Sure enough, BMBL closed above $70 on February 11 after pricing at $43.

  • March 16 marked the Quiet Period End Date to let the new equity listing settle down (or cool off) after an often volatile first few weeks of being public.

Looking ahead, there are several key dates investors must monitor so that risk is properly managed. It is important to consider the timing of additional events such as earnings announcement dates and conference calls when evaluating the financial health of a company. As shown in Figure 2, BMBL has a confirmed earnings date of August 11 after market. A week later, on August 18, the next critical IPO-related date strikes: the IPO Lock-Up Expiration Date., which is often 180 days after going public. There’s the risk that a wave of selling pressure could come across the tape on BMBL next Wednesday.

Figure 2 - What’s to Come: Earnings & Lock-Up Expiration

Source: Wall Street Horizon

Holders of BMBL have already felt the sting of significant selling. After closing near $80 on the third day of trading, the stock has fallen hard into the $40s. It got a reprieve starting in mid-May when many tech-related growth stocks got a boost from sector rotation in the broader market, but the stock has been on the slide again since late June. More risk could be on the table this week and next with two important events taking place.

BMBL Stock Price History (YTD)¹

Conclusion

IPO mania was short-lived. Holders of firms that have gone public this year have been largely punished for taking such risk, which is strange considering how well equity markets have performed. Simply buying up shares of newly public companies has not worked over the last six months. Wall Street Horizon helps traders manage risk in today’s IPO market. 


¹ https://stockcharts.com/h-sc/ui?s=BMBL&p=D&st=2021-01-01&id=p40098201877