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IPO Stocks

Updated: June 23, 2021, 5:52 p.m.

Almost every stock on the market today was an IPO stock at one point in its history. An initial public offering (IPO) has long been the primary vehicle for companies entering the public markets.

In the IPO process, a privately held company declares its intention to go public by filing the necessary documents with the U.S. Securities and Exchange Commission (SEC). Over a period of several weeks, the company works with underwriters to obtain commitments from institutional investors to buy blocks of stock. The company and its underwriters then set the IPO per-share price, and the stock begins trading publicly on a stock exchange. Post-IPO is when shares become available to regular retail investors like you and me.

The definition of an IPO stock is simple: An IPO stock is one that either recently became available in the public market or is about to become available. Any stock that is near its IPO date, or generally up to one year after it goes public, may be called an IPO stock.

IPOs to watch in 2021

The IPO boom in the second half of 2020 has maintained momentum into 2021. Even as the prices of many high-profile tech stocks pulled back from their highs early in the year, demand for new stock issues has remained strong, with a number of IPOs experiencing price surges on opening day.

Among the recent IPOs to watch are the following:

1. Coinbase

The crypto boom officially went mainstream in April 2021 with the successful debut of Coinbase (NASDAQ: COIN), the largest cryptocurrency exchange in the U.S. and the first major crypto business to list on the public markets.

Coinbase chose to go public through a direct listing, which is similar to an IPO but allows a company to skip the process of selling new shares and avoids having to pay underwriters. The stock simply begins trading on an exchange at a predetermined price and enables current equity holders to sell their shares.

Coinbase's stock price initially surged in its debut, jumping from the $250 “reference price” to nearly $430 in its first trading days. In the following weeks, however, the stock's price fell, along with the prices of cryptocurrencies in general, after Tesla (NASDAQ: TSLA) CEO Elon Musk said that his EV company would stop accepting Bitcoin (CRYPTO: BTC).

Expect Coinbase’s value to be closely linked to that of the most popular cryptocurrencies such as Bitcoin, Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) for the foreseeable future.

2. Roblox

Like Coinbase, the online gaming platform Roblox (NASDAQ: RBLX) went public in March 2021 through a direct listing, and the stock gained value in subsequent weeks. Roblox is not a game-maker but rather an operator of a platform that allows anyone to make a video game.

Roblox now has more than 8 million developers on its site and more than 32 million daily active users. Like other video game companies, Roblox’s growth accelerated during the pandemic as bookings jumped 171% during 2020, compared to a 39% growth rate in 2019.

Management has warned that growth will decelerate as the pandemic fades, but the platform business model has worked well for other companies and should continue to do so for Roblox as well. The company has a number of competitive advantages, including network effects and structural barriers to entry, which should fuel its long-term growth.

3. Airbnb

Airbnb (NASDAQ: ABNB), the home-sharing pioneer, was in panic mode early in the pandemic as global travel virtually ground to a halt. The company was forced to raise money at half its prior valuation and laid off nearly a quarter of its employees. However, business recovered quickly as guests looked to escape from cities and find long-term stays with more space.

Airbnb's IPO hit the market in December 2020, and the stock price more than doubled on opening day, reaching a $100 billion market value. As with companies such as Zoom and Google, Airbnb’s name has become a verb -- a clear demonstration of its market power.

Through the first quarter of 2021, the company's growth is still being hampered by the pandemic, but its long-term prospects remain bright. Airbnb's share of the global travel market has grown during the pandemic.

4. DoorDash

DoorDash (NYSE: DASH), the leading food delivery app, now claims a 55% market share in the U.S. It separated itself from the pack during the pandemic by focusing on increasing restaurant delivery orders instead of cutting costs for the restaurants. Like Airbnb, DoorDash also completed its IPO in December 2020, and its stock price also soared -- by 86%, for a market cap of $72 billion.

The company has developed technology for restaurants to use and makes fast delivery a priority, ensuring that food arrives hot. Those efforts, along with a focus on the suburbs, have helped DoorDash win over big chain restaurants. Consequently, DoorDash is the food delivery market leader today, having surpassed Uber (NYSE: UBER) and Grubhub (NASDAQ: GRUB).

DoorDash still expects to grow in 2021, indicating this is more than just a pandemic story. The company is diversifying beyond restaurants, with a long-term aim of challenging Amazon (NASDAQ: AMZN) as a clearinghouse for all things delivered.

Upcoming IPOs: companies going public in 2021

Here are some other big-name companies making plans to go public in 2021:

1. Robinhood

The mobile-first brokerage announced in March 2021 that it had confidentially filed to go public, although its IPO timeline is still unclear. Robinhood has disrupted the online stock brokerage industry and experienced a surge in interest during the pandemic, adding 3 million new customers in January 2021 alone.

In September 2020, the company raised funding at an $11.7 billion valuation. According to Reuters, an IPO could value the company at more than $20 billion, although the timing and valuation are dependent on market conditions.

2. Instacart

This leader in online grocery delivery is also planning to go public in 2021, according to Reuters. A public stock offering has been on the horizon since CEO Apoorva Mehta declared the company’s intention to go public in September 2019.

Instacart has also been a big winner during the pandemic. Grocery delivery has been in high demand, and the company raised $200 million at a $17.7 billion valuation in October 2020.

The Instacart IPO is expected to value the grocery delivery specialist at around $30 billion. The company is reportedly considering a direct offering and may not go public until late 2021.

3. Rivian

This electric-vehicle (EV) maker is the latest EV stock expected to make a splash in the public markets. According to Bloomberg, the company is aiming to go public as soon as September 2021 after raising $2.65 billion in January at a valuation of $27.6 billion.

EV companies such as Tesla and Nio (NASDAQ: NIO) have delivered huge returns to investors since the pandemic began, so it’s not surprising that Rivian would seek to take advantage of investor interest. The company may be best known for its deal to manufacture 100,000 custom electric vans for Amazon by 2030.

Should you invest in initial public offerings?

IPOs can be exciting for investors, offering the chance to get in early on owning a stock. Since IPOs are almost always young companies at the beginning of their trading lives, they also have the potential to generate greater returns than any other kind of stock, especially those of more mature companies.

Before you take the plunge, remember to read the company's SEC filings, which contain important information on the company’s financial results and strategy. Consider the size of the stock market sector in which the company participates to get a sense of the company’s growth potential. Evaluate the quality of management, whether the company has competitive advantages, and if it has disruptive potential.

Remember that not every IPO is a good investment. The hype around IPO stocks can distract even experienced investors, and promising companies' stock prices can struggle in the public markets.

While it’s true that most IPO stocks initially underperform the market, the long-term windfall from a big winner can more than make up for several losers. Not every IPO is going to be the next Amazon, but IPO stocks can still confer impressive gains for buy and hold investors.

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