2021 IPOs and SPACs: Lessons for Future Flotations

IPO Market Update: SenseTime Delay and Samsara's Upcoming Debut

Recent developments indicate that the SenseTime IPO has been postponed, leaving Samsara’s anticipated public offering as the primary significant tech listing currently scheduled. Samsara is expected to price its shares on Tuesday and begin trading on Wednesday.

Reviewing Recent IPO Performance

This situation presents an opportune moment to analyze the performance of several prominent IPOs from the past year. The initial trading activity of these companies was notably high.

The surge in retail trading, facilitated by platforms such as Robinhood and WeBull, contributed to substantial gains for some recent tech IPOs immediately following their debut. However, a key question arises: were these initial increases sustained, or did they diminish over time?

SPAC Performance: Latch and SoFi

Beyond traditional IPOs, it’s also important to assess the performance of several SPAC mergers that initially appeared promising. How are companies like Latch and SoFi faring post-merger?

Evaluating these outcomes is crucial as the primary IPO season draws to a close. Understanding the trajectory of these public offerings provides valuable insight into current market dynamics.

Analyzing IPO "Pops" and Mispricing

The discussion surrounding IPO mispricing has been prevalent. Did the large initial gains observed in some cases represent genuine value creation, or were they simply a result of market exuberance?

Determining whether these early gains were fleeting or indicative of long-term potential is essential for understanding the current state of the IPO market.

The Exchange: A Recap

The Exchange provides coverage of startups, market trends, and financial matters. It is available daily on TechCrunch+, and a newsletter is distributed every Saturday.

This analysis aims to provide a comprehensive overview of recent public offerings and their subsequent performance, offering valuable context as the market anticipates further developments.

Concerning the Phenomenon of Significant Initial Public Offering (IPO) Gains

Looking back to the same period last year, both DoorDash and C3.ai completed their initial public offerings, achieving substantial returns in the early stages. As reported by TechCrunch on December 9, 2020, the prevailing opinion was that these IPOs were undervalued.

The argument centered on the belief that investment banks had priced the IPO shares too conservatively, benefiting their client base while simultaneously limiting the fundraising potential of DoorDash and C3.ai. However, how have these companies performed since that time?

Here’s a current assessment as of this morning:

• DoorDash’s pre-market trading value stands at $156.00.
• C3.ai is currently valued at $33.50 in pre-market trading.

In essence, DoorDash has experienced approximately a 50% increase from its IPO price over the past year, whereas C3.ai has seen a decline of around 20%. This suggests that the initial surges in price were temporary and did not accurately reflect the underlying value of either company. Were the IPOs, therefore, mispriced? The evidence suggests otherwise.

Had both companies priced their shares at the peak of early trading, they would currently be trading below their IPO price, rather than just one of them!

The substantial gains realized by DoorDash and C3.ai prompted Roblox to postpone its IPO, choosing instead to secure private funding and subsequently direct-list its shares. A brief timeline of events:

• Roblox submitted its IPO filing on November 19, 2020.
• The company announced a delay of its IPO until 2021.
• Roblox further postponed its IPO, raising capital at a $29.5 billion valuation and direct-listing with a reference price of $45.

Currently, Roblox boasts a market capitalization exceeding $65 billion, translating to a pre-market trading price of $115.35 per share, according to Yahoo Finance data. This demonstrates a company that bypassed a traditional IPO, opting to be potentially undervalued by private investors instead of public market participants. The entire Roblox IPO situation essentially transferred wealth from one group of affluent individuals to another.

Quite remarkable.

The Roblox case highlights the difficulty in accurately pricing IPOs during periods of market volatility. Investors who criticize IPO pricing that falls below initial trading levels have not consistently demonstrated superior judgment when evaluating companies prior to direct-listing.

Now, let’s examine Coinbase. Here are the key details:

• Coinbase’s final private valuation, established in 2018: approximately $8 billion
• Coinbase’s direct listing reference price: $250 per share
• The peak share price following the listing: $429.54 per share
• The company’s current share price: $252.00 per share
• This equates to a $67.0 billion valuation as of today’s pre-market trading.

Analyzing this data reveals a pattern of initial enthusiasm for a recently public tech company exceeding its intrinsic value. Simply put, Coinbase was likely undervalued in 2018 and overvalued immediately after trading commenced. Ironically, the reference price proved to be quite accurate.

Further examples exist. Coupang priced its shares at $35, traded above $50 on its first day as a public entity, and is now valued at $26.75 per share in pre-market trading. In this instance, the investment banks assisted the company in raising capital at a price it ultimately could not sustain. Would it have been preferable for the company to raise funds at $50 per share, resulting in even more substantial post-IPO declines?

Ultimately, when investors express dissatisfaction with stock mispricing, it’s important to remember that their frustration stems from the fact that other investors have profited handsomely from the efforts of others.

Evaluating the Success of SPACs

A recent discussion brought the topic of Special Purpose Acquisition Companies, or SPACs, to the forefront.

Despite the overall market sentiment, a few SPAC mergers have yielded somewhat positive results:

• Currently trading at $15.03 per share, Opendoor has increased in value from its initial $10 per share SPAC price. However, it remains significantly lower than its previous 52-week high of $39.24.
• SoFi’s share price stands at $15.05 as of this morning, also representing an increase from its $10 SPAC value. It too, falls short of its 52-week peak of $28.26.

The list of truly successful SPACs remains relatively short. While Trump Media & Technology Group’s associated SPAC is experiencing pre-merger value increases, we are excluding it from consideration.

Several deals initially sparked optimism, but ultimately underperformed. The merger involving Latch appeared promising, but its current share price is below $9. Circle’s SPAC transaction is still pending completion, despite initial positive assessments.

Generally, SPACs have proven effective this year in securing funding for companies that may have faced challenges with traditional IPOs or desired valuations. Bird is currently trading under $9 per share, and Grab is below $7, illustrating this point.

The overall outcome has been inconsistent and unremarkable. SPACs offer a viable option, but are not a comprehensive solution to the challenges inherent in the IPO process.