Buying shares of a company that recently went public can allow investors to get in early on a stock that's poised to grow. But while IPOs offer lots of potential upsides, not all new publicly traded companies are worth investing in, and even the ones that are can see their share prices fluctuate following their IPO.
If you're looking for a few IPOs that are actually worth buying, there are three companies that went public within the last four months that a few Motley Fool contributors think could be great long term bets. Here's why Coupang (CPNG +2.02%), Clover Health Investments (CLOV +5.18%), and Airbnb (ABNB +1.05%) made it on the list.
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The Amazon of South Korea
Danny Vena (Coupang): Coupang may not be a household name here in the U.S., but you'd be hard-pressed to find someone who hasn't heard of the company on its home turf of South Korea. Coupang is the leading e-commerce provider in the Asian nation, becoming a powerhouse in just over a decade.
The company was founded in 2010 and has made a name for itself on the back of its superior customer service and rapid delivery times. Taking a page from the Amazon playbook, Coupang offers same-day and next-day delivery, courtesy of its unrivaled fulfillment network. Roughly 70% of the South Korean population is within seven miles of one of its warehouses.
The company's mission statement is telling: "To create a world where customers wonder: 'How did I ever live without Coupang?'" The company believes that by investing for the long term in technology and infrastructure, "with a fanatical culture of customer centricity, we are delivering a superior customer experience at a lower cost." If that sounds familiar, it should -- it could easily have been penned by Amazon CEO Jeff Bezos, and certainly follows his customer-centric philosophy.
It's worth noting that due to a dual-class share structure, Coupang's founder and CEO, Bom Suk Kim, will control 10% of the outstanding shares and 76.7% voting control of the company.
For the year ended Dec. 31, 2020, Coupang reported net revenue of roughly $11.97 billion, an increase of 91% year over year, and and an acceleration from 55% growth in 2019. This continues the company's growth at scale. In the fourth quarter, sales had grown fourfold compared to the first quarter of 2018. Perhaps even more impressive, Coupang's revenue has climbed at a compound annual growth rate (CAGR) of 64% since 2016.
The company is also making progress on the bottom line, with its loss growing at a much slower pace. Coupang generated a net loss of $475 million, much improved from a loss of $699 million in 2019.
Just prior to its IPO in early March, management priced shares at $35, but the stock opened at $63.50 and surged out of the gate, ending its first day of trading at $49.25, up 41%.
Given the massive growth trajectory and the potential to follow in Amazon's footsteps, I think Coupang is actually worth buying. Patient investors can now pick up the stock at roughly $43, below what it cost on day one.
Image source: Getty Images.
At the intersection of tech and health insurance
Brian Withers (Clover Health Investments): People age 65 and up are the fastest-growing population group in the United States today. In 2010, this cohort made up only 13% of the population. By 2018, it had jumped to 16.1%. It's estimated that 10,000 people join this large group of seniors every day and more than 68% have two or more chronic conditions. It's not surprising that this market for Medicare Advantage plans to serve this group is a massive $270 billion and expected to grow at 14% per year.
What if you could design Medicare Advantage plans using technology and machine learning to enable caregivers to make better, more informed decisions resulting in lower costs for patients? That would be a winning formula, and that's exactly what Clover is betting on.
It uses its leverage as a Medicare Advantage provider to collect large amounts of data about its patients' care and provides access to the information to physicians in the network through its Clover Assistant application. This data portal can be tremendously helpful to physicians, as patients may not always remember all of their medications or what care plan a previous specialist recommended for them. As its membership grows, the data and the information should only get better, making it a sustainable model to improve healthcare outcomes and costs for patients.
Clover has only had one quarter as a public company, but investors have access to the last two fiscal years of results and its estimate for the coming year.
|
Metric |
FY 2019 |
FY 2020 |
FY 2021 Estimate |
2019 to 2020 Change |
2020 to 2021 Change |
|---|---|---|---|---|---|
|
Revenue |
$462 million |
$673 million |
$835 million |
14% |
24% |
|
Members |
42,592 |
58,056 |
69,000 |
36% |
19% |
|
MCR* |
98.6% |
88.7% |
100% |
(9.9%) |
11.3% |
Data source: Clover Health Investments shareholder letter. MCR = medical cost ratio or the total net medical claim expenses incurred divided by premiums earned (lower is better).
Revenue and member growth have been solid and its medical cost ratios have been kept at manageable levels. But investors should be excited about the massive growth runway for this upstart. Even though the company collected almost $700 million in premiums this past year, it only offers plans in 108 of the 3,000 counties across the U.S.
With a greater than 50% acceptance rate of its Clover Assistant app with independent physicians, this model looks like it has a chance to work. If you are excited about a company that's looking to change healthcare for the better in the U.S., you might consider Clover for your portfolio -- especially with the stock down over 35% from its high earlier in the year, even with the recent surge in its share price.
Image source: Getty Images.
This travel stock is just getting started
Chris Neiger (Airbnb): Airbnb, the travel platform that makes it easy for people to find unique rentals for vacations, went public at the very end of 2020 and its share price has climbed 22% from its opening price of $146 per share.
Some investors think Airbnb's stock is already overvalued, but I think that opinion is missing Airbnb's long-term potential in the travel industry and the company's unique position in the space.
As the U.S. economy begins to open back up people are anxious to travel. Airbnb's management believes "a significant travel rebound" is coming this year. In fact, a recent survey showed that 65% of Americans plan on traveling more in 2021 than they did before the pandemic.
But Airbnb isn't just a bet on a short-term travel boom. The company believes it has a massive $3.4 trillion total addressable market. To help tap into that market for years to come, Airbnb offers some of the most unique experiences and rentals that its larger competitors have yet to fully replicate.
Airbnb has 4 million hosts across 200 countries that have served 800 million guests and the company is working to get millions more hosts on its platform to meet its future demand.
Investors will find out more about how the company is doing when it reports its first-quarter results on May 13. And investors should keep in mind that the company still isn't profitable right now and the first-quarter results won't include the coming travel rebound.
But Airbnb's foundation is firm. The company's fourth-quarter revenue of $859 million easily outpaced analysts' estimate of $748 million and full-year sales were down only 30% compared to 2019. The company has built out a unique position in the travel industry and as Americans, and the rest of the world, begin traveling again you'll be glad you snatched up this stock early.
