A record-breaking IPO deluge could be coming this autumn

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Investments

The latest reports suggest that autumn 2021 will be the busiest period for IPO launches to date.

IPO launches

Potentially hundreds of new public offerings are on their way

2021 has already seen the highest number of initial public offerings since the 2000 dot-com boom. It could be about to see more as we transition into autumn.

CNBC reports that up to 110 companies will go public across the next 3-4 months. That would bring the total number of deals up to 375 – valued at a cool $125bn in fundraising.

In the pipeline, we see a mixture of companies but a significant number of FMCG and food firms are on the radar.

Grocery business Fresh Market, deliver service Instacart, and Greek yoghurt producers Chobani are in the process of making their initial filings. Adding to the list of food-related businesses prepping their IPOs are casual salad restaurant chain Sweetgreen and Impossible Foods, a manufacturer of plant-based meat alternatives.

A number of fashion firms are involved too. Warby Parker, the prescription eyewear business, will likely be going live with a direct listing in the coming months. Authentic Brands, which owns the Nautica and Eddie-Bauer brands, has been eyeballed as about to go public, alongside Indian e-commerce retailer Flipkart and sustainable footwear brand Allbirds.

Digital payment processor Toast and mobile payments processor Stripe represent some of the tech stocks possibly launching IPOs.

They may be joined by several cryptocurrency filings. We’ve already seen Coinbase, the US largest crypto exchange, go public, and there are indicators other digital currency businesses will join them. Sustainable crypto mining firm Stronghold Digital Mining is one such company.

Others to watch include EV builder Rivian Automotive, global asset manager TPG and Republic Airways.

In terms of direct listings, the only one mentioned so far is Warby Parker.

What about SPACs?

It’s thought that SPACs – special-purpose acquisition companies – may have a tougher time raising capital for initial offers in the second half of 2021. Greater scrutiny from regulators like the SEC and a drop off in investor returns from SPACs may contribute to this.

The first half of the year, however, was a SPAC bonanza. 310 such offerings were launched then, generating $70bn in funds. A further 410-blank cheque companies smashed records too when they raised $109bn in the same period.

Will investors make returns?

It’s hard to say at this stage. After market performance has generally been negative across 2021 so far. Some much-anticipated tech stocks, like Coinbase or Robinhood, underperformed after going public for a myriad of reasons. In the case of Robinhood, its links to the volatile cryptocurrency market has caused several fluctuations in the share price.

Pricing IPOs towards the lower end may help sustain growth going forward. Some IPO-tracking ETFs, such as the Renaissance Capital IPO ETF, were flat towards the end of H1 2021, but have subsequently gained traction in July and August. Public offerings since then have been had lower pricings, which may have fed into heightened investor interest.

With the rumoured number of new IPOs, however, it may be worth prepping your trading calendar now. Be sure to stay tuned to Markets.com for further initial public offering updates.

What are IPOs and how can you trade them?

When a company decides to go public, it may do so by making an Initial Public Offering, or IPO. Here, we take a look at what that means – and how you can start trading on a company going live for the first time.

IPOs

What are IPOs?

Companies often do not start as publicly traded companies. They do not issue stock or may only issue shares to private shareholders.

However, many companies decide to go public. This means their stock will be listed on stock exchanges and be available for public trading. In theory, anyone could be a shareholder by purchasing shares in said company.

These tend to be some of the most exciting events for stock traders and investors. For instance, when Coinbase announced it was going public in February 2021, it created a wave of market interest.

There are a couple of different ways a busines can go public. One of the most popular is by making its Initial Public Offering.

There are a couple of reasons why a company may choose an IPO, including:

  • Raise capital
  • Pay off debts
  • Monetise assets
  • Improve its public profile

Once it goes live, the business’ stock will be available for retail traders and investors to buy and trade.

These tend to be medium-to-large cap companies. For example, when money sending service Wise was worth an estimated $5-9bn ahead of its IPO.

Smaller companies may use other methods to get access to public capital. The London Stock Exchange Alternative Investment Market (AIM), for example, is where small companies that have exhausted their private money, but are not at the level required of an IPO, can still be publicly listed.

How does the IPO process work?

The first part of an IPO is the audit. This is basically a review of all the company’s financial ins and outs.

The company will then have to file a registration statement with the relevant authorities. So, if a business were to launch on the London Stock Exchange, then it need to share its registration statement with the Financial Conduct Authority (FCA).

The stock exchange the company wants to list on will then review the business’ application. If successful, the company will move on and work with an underwriter to determine how many shares it should release to the public. If unsuccessful, it will have to go back, review its application, and try again.

The filing will also be read by traders and investors to get a flavour of a) the company’s financial health b) its IPO plans and c) what to possibly expect when it finally launches.

Generally, a business will work with an investment bank to determine its IPO share price, i.e., the price per share when the stock first goes public. Goldman Sachs was hired to price trading app Robinhood’s IPO, for example.

There is no set timeframe for an IPO. They require many different stakeholders and complex processes to reach fruition.

Trading or investing in an IPO

There are a couple of ways to trade and invest in a stock that’s gone public – even before the process is completed.

Grey markets

At Markets.com, we offer grey markets.

A grey market let’s use offer Contracts for Difference (CFDs) on a stock before it goes live. You can speculate on its price movements and estimated market cap up to the end of the stock’s first trading day.

A grey market CFD’s price will be determined by our pricing team, based on the company’s prior financial performance, its initial public offering filing, and predictions on how we think the stock will perform.

Trading is about speculating on price movements. CFDs allow you to do this without owning the underlying asset. These are leveraged products. That means you gain exposure for a fraction of the total trade’s value. However, profit and loss is gauged by the total size of your position, not your deposit, and can far outweigh your initial deposit. Your risk of loss is higher. Only commit capital if you can afford to take any potential losses.

Please note: a grey market will not be offered as an investment product. Investing is the act of buying shares to hold onto in the hope they gain value. Because the stock hasn’t actually launched yet, you would be unable to buy and hold a grey market CFD.

When the IPO launches

One the IPO goes public, you will be able to buy the stock to add to your investment portfolio. Alternatively, you will now be able to trade on its price movements using spread betting or CFDs in the manner mentioned above. To reiterate, you will not own the asset if you pursue a spread or CFD-trading strategy.

How do IPOs perform after launch?

That depends on a myriad of factors. Sometimes stocks come roaring out the traps. Other times, as was seen with Robinhood with its IPO launch, a company going public can be a bit of a damp squib and fall below market expectations.

The stock’s performance should also be gauged over different timelines.

We’ve split the table below into different stock categories to see how company shares tend to perform in their first day, first week, and first month after their first public offering.

The data represents a global overview for stocks in 2020, rather than IPOs stocks listed on a specific exchange. It also includes a comparison of IPO stocks against main market and AIM stocks.

Stock type Price movement- first day Price movement – first week Price movement – first month
All IPOs 6.6% 9.0% 1.5%
Main market 4.6% 4.4% 0.7%
AIM stocks 9.0% 14.6% 12.4%

 

Where can you find out about upcoming initial public offerings?

Generally, each stock market will have a dedicated calendar or page detailing upcoming debut stock listings. Here are some examples

London Stock Exchange

Nasdaq

New York Stock Exchange

We also inform our clients on upcoming IPOs. You can find more information in our news section.

A word on debut listings and risk

Please note that trading and investing carries with it the risk of capital loss. The value of your investments may go down. If you trade leveraged products like CFDs then you may encounter serious losses.

Do your research prior to committing any capital. Only invest or trade if you can afford to take any potential losses.

JD.com raises $3.9 billion in 2020’s second-biggest IPO so far

IPO

JD.com, the second-largest online retailer in China, has raised $3.9 billion during its secondary listing on the Hong Kong Stock Exchange.

The company is pricing its IPO at HK$226 per share, HK$10 below the top end of its indicated range. JD.com already trades on the Nasdaq.

Shares will start trading in Hong Kong on Thursday 18th – the same day as the company holds its massive annual Anniversary Sale (known as 6.18). Last year JD.com reported sales of almost $30 billion – this week’s event will be a key test of demand as China continues to recover from lockdown and battles a fresh outbreak of Covid-19 cases.

The JD.com IPO follows a public offering by NetEase which raised $2.7 billion. Together the two tech giants have raised $6.6 billion – almost double what the rest of the Hong Kong IPOs have raised all year.

NetEase shares ended their first day of trading up 5.7%, closing HK$7 higher than its offer price of HK$123.

Hong Kong IPOs get a boost on US-China tensions

Increasing tensions between Washington and Beijing have helped stoke the Hong Kong IPO market recently. The US House of Representatives is considering a bill that would mandate US-listed Chinese companies to undergo financial audits, which could result in a number of companies being delisted.

This has prompted many companies whose shares are already traded in the US to seek a secondary listing in Hong Kong as a precaution.

NetEase acknowledged the impact that rising tensions could have in its IPO filings. Baidu founder and chairman, Robin Li, also acknowledged recently that his company could consider a secondary listing in Hong Kong if the US government tightens regulations surrounding Chinese firms.

More IPOs on the way

This could be the start of a reawakening for the IPO market in Hong Kong. China Bohai Bank Co is looking to raise over $2 billion, while both Smoore International Holdings and SK Biopharmaceuticals are expected to raise around $800 million.

Upcoming Hong Kong IPOs

  • JD.com
  • China Bohai Bank
  • SK Biopharmaceuticals
  • Hygeia Healthcare Holdings
  • Kangji Medical Holdings
  • Smore International Holdings
  • Zhenro Services Group

IPO: The ultimate trader’s guide to initial public offerings

An initial public offering or IPO can be an exciting trading opportunity. It’s the first chance that most investors and traders get to grab a slice of some of the hottest new companies.

But what is an IPO, and how does it work?

In this article:

  • IPO meaning
  • How does an IPO work?
  • IPO versus direct listing
  • Can I trade IPOs?

What is an IPO?

An IPO, also known as a flotation, is where a private company sells new shares to public investors. It’s a way of raising capital to fund further growth and innovation, and also allows existing investors to reap the rewards of backing the company during its start-up phase.

Up until this point, the company is privately owned by the people founded it, and any staff or early investors who were given shares.

How does an initial public offering work?

A company that wishes to go public will need to meet certain criteria laid out by the domestic market regulator – such as the Securities and Exchange Commission (SEC) in the United States. Companies can also choose what exchange they want to list on, such as the New York Stock Exchange or the NASDAQ, and these too have their own requirements.

Companies need the help of an underwriter or underwriters to hold an IPO. These are investment banks such as Goldman Sachs, Morgan Stanley, and JPMorgan, and are responsible for arranging and marketing the initial public offering.

It’s common for underwriters to assume all the risk of the IPO by buying all of the new shares being issued by the company, and then selling the stock to public investors.

IPOs: Roadshows and pricing

In the run-up to an IPO, a company will issue a prospectus and hold investor roadshows across the country in which it is listing in order to drum up interest in the flotation. The prospectus will give a target price range for the shares to be issued. This is often adjusted to reflect market demand as the company’s stock debut draws near.

Sometimes the stock of the company is so in demand ahead of its initial public offering that the company decides to issue more shares than originally planned – usually the underwriters are given the power to automatically increase the size of the issuance by a set amount of shares if demand warrants it.

Check out the upcoming 2020 IPOs to stay on top of the roadshows and pricing data of this year’s most anticipated public offerings.

What happens if demand is higher or lower than expected?

Although the underwriter buys the new shares at the final initial offer price, the stock can open above or below this price on its first day of trading. If the company going public and the underwriters have overestimated demand for the stock, the underwriter may have to sell the shares for a lower price than it bought them.

And if demand has been underestimated, the underwriter may be able to sell the stock for a much higher price than it bought them. Doing so is likely to damage their reputation, however, so underwriters have an incentive to try and sell the shares for as close to the initial offer price as possible.

What’s the difference between an IPO and a direct listing?

Companies who don’t want to hold an initial public offering may instead opt for a direct listing. With an IPO, the company going public is selling new shares, giving away control of more of the business.

A direct listing, on the other hand, is where a company allows its existing shareholders to sell the stock on public markets. This allows early investors to reap the benefits of backing the company, and allows the company to trade publicly without giving away control through the issuing of new shares.

A company does not need to hire underwriters in order to hold a direct listing – saving it a lot of money in fees. This also means existing investors may be able to sell their stock for a higher price.

Can I trade IPOs?

IPOs can represent some of the biggest trading opportunities on the stock market. Companies such as Beyond Meat have seen their stock surge since they went public, while others, like Uber and Lyft, have performed poorly.

With Marketsx you can trade companies before they go public with our exclusive grey markets, or trade CFDs on the hottest companies on the day they debut, as well as taking positions on ETFs that track the newest stocks on the market.

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