IPOs head for ‘ban­ner year’

Arab Times - - BUSINESS -

NEW YORK, Sept 24, (AP): Com­pa­nies that cater to the “new nor­mal” of work­ing and shop­ping from home are rushing to go public.

2020 could turn out to be the best year for the IPO mar­ket in two decades. Newly public com­pa­nies have pig­gy­backed on the broader stock mar­ket, which made a soar­ing re­cov­ery in spring and sum­mer af­ter COVID-19 and the en­su­ing lock­downs de­railed the long­est bull run in his­tory.

As in­vestors shifted their fo­cus to eq­ui­ties, pri­vate com­pa­nies search­ing for fund­ing took no­tice. “A lot of com­pa­nies sit­ting on the side­lines wait­ing to go public re­ally used this as an op­por­tu­nity,” said Lind­sey Bell, chief in­vest­ment strate­gist at Ally In­vest.

Through Au­gust, 143 com­pa­nies went public and brought in more than $50.4 bil­lion in pro­ceeds, the most since 2014. Ally In­vest projects up to 206 com­pa­nies could go public by the end of the year, with pro­ceeds from IPOs hit­ting $72 bil­lion.

Tech­nol­ogy com­pa­nies have been well rep­re­sented in the IPO mar­ket this year, es­pe­cially com­pa­nies that are po­si­tioned to take ad­van­tage of the shift to work­ing and shop­ping from home. Snowflake, a cloud-based data com­pany, saw its stock value dou­ble from its ini­tial price, mak­ing it worth more than $70 bil­lion in its de­but. The com­pany is backed by Sales­force and Berk­shire Hath­away. Soft­ware com­pany Sumo Logic gained 22% in its de­but. In­ter­net­based in­surer Lemon­ade also saw its stock value dou­ble in its de­but in July.

“The fun­da­men­tals re­ally are there for these types of com­pa­nies to do well and to do well with­out sig­nif­i­cant eco­nomic growth,” Bell said. Still, it’s dif­fi­cult to de­ter­mine which IPOs will be booms or busts, Bell said. In­vestors have to re­ally think about the risks and be pre­pared for a long-term re­la­tion­ship with the com­pany, rather than trade on its ups and downs.

About half of US-based stocks that went public from 2015 to 2019 were trad­ing be­low their IPO prices a year later, Bell said. Those stocks in­clude well-known com­pa­nies like Uber, Fit­bit and Blue Apron.

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