3 Red-Hot IPOs That Soared Last Week
The IPO market was on fire in the last months of 2020, attracting investors such as notable newcomers like Airbnb, DoorDashand Snowflakewhich gained 113%, 86% and 112% respectively on the first day of trading for each stock.
The extreme market volatility that occurred early last year with the onset of the pandemic helped attract legions of new investors. It’s also easier than ever to get started, thanks to the launch of user-friendly investing apps like Robinhood.
Whatever the cause, 2021 is starting much like last year with strong demand for new issues driving many IPOs. Let’s take a look at three companies that debuted in the public markets last week and why investors were so excited to get started.
Affirm: Extending its digital payment legacy
There is no doubt that online shopping has changed forever as a result of the pandemic. More shoppers than ever are opting to shop online. The acceleration of digital commerce, however, has created some problems in its wake, especially when it comes to installment payment options. Existing offers are full of fine print, late fees, overdraft fees and a minefield of deferred interest.
Fintech lender To assert ( AFRM -8.68% ) wants to change all that. While the company may not enjoy the same name recognition as other IPOs this week, it certainly has an impressive legacy. The company is the creation of Max Levchin, who is the co-founder of the digital payments pioneer PayPal.
Affirm strives to democratize premium online shopping with a consumer-centric focus by offering seamless installment payment options at checkout. The company financed 6.2 million customers on more than 6,500 merchant sites. An impressive 64% of its business comes from repeat customers, while it boasts a Net Promoter Score of 78, where anything above 70 is considered “world class”.
The company’s growth accelerated in the first three months of its current fiscal year, with revenue of $174.0 million up 98% year-over-year. The company halved its red ink with a net loss of $15.3 million, much better than a loss of $30.8 million in the year-ago quarter.
Given Affirm’s impressive pedigree and recent financial results, it might be worth keeping an eye on this fintech player.
Petco: Not Your Grandpa’s Pet Supplies Retailer
It’s no secret that Americans love their pets, and the ongoing pandemic has also caused a surge in pet adoptions from animal shelters. American consumers are estimated to have spent a record $99 billion last year on pet-related items, including everything from food to medical care.
Health and wellness company Petco ( OUAF -1.03% ) working hard to take advantage of this trend. The former pet food and supply retailer now offers a broad ecosystem of products and services that includes training and grooming, veterinary services and pet insurance. Petco is also focusing more on exclusive merchandise such as own brands and high-end foods and supplies to attract high-end shoppers.
About three years ago, Petco launched a campaign to transition from a traditional retailer to a fully integrated, digitally-focused provider of pet health and wellness products. As part of this digital transformation, Petco has been working to expand its e-commerce and mobile commerce capabilities while using data analytics to refine its offerings.
This strategy seems to be paying off. In the first 39 weeks of 2020, Petco’s sales growth accelerated with revenue of $3.58 billion, up 9% year-over-year, while trimming its net loss to $25 million, a big improvement from the $94 million loss in the prior year period.
On its first day of trading on Jan. 14, the stock opened at $26, easily eclipsing the $18 offer price. Shares of Petco ended the trading day at $29.40 per share, jumping 63%.
If its recent results are any indication, investors may want to take a walk with Petco.
Poshmark: Making Used Goods Cool Again
Vintage, pre-owned and second-hand items are back in fashion, with younger consumers leading the charge. In fact, 57% of consumers aged 13 to 37 say they “never pay full price for clothes,” according to a survey by YPulse.
posh mark (CHIC -8.74% ) contributes to fueling the strong and growing demand for second-hand products. The online bazaar offers a variety of second-hand and second-hand fashion items, including clothes, shoes, and jewelry. The company leverages technology to create a personalized shopping experience, using sophisticated algorithms to match shoppers with potential purchases. The secret sauce that sets the digital business apart, however, is the social aspect of its marketplace.
The company has over 30 million active users who spend an average of 27 minutes a day in the digital flea market, browsing, shopping, buying, selling and connecting with other shoppers, driving a a staggering 20.5 billion social interactions in 2019.
In the first nine months of 2020, Poshmark generated revenue of $192.8 million, up 28% year over year. The net result also turned positive, generating a net profit of $21.8 million, reversing the loss of $34.8 million in 2019.
These factors undoubtedly contributed to the impressive presentation of the company on the first day. The stock also debuted on January 14, climbing 142% on Thursday.
Used and vintage items will never be in short supply, and Poshmark taps into the mature market for used goods.
Let the buyer beware
It is important to note that investing in IPOs involves risk. It is difficult for the average investor to obtain these shares at a price close to the offer price. Additionally, new issues are inherently riskier than your average stock due to their typically short track record.
Given the aggressive first-day moves in these stocks, there are already high expectations in today’s prices, so they will need to raise their valuations. That said, buying an appropriately sized position as part of a diversified portfolio with a long enough investment timeline can make sense for many investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.