After a bubbly year for IPOs, 2022 is shaping up to be a meltdown. Shares of many companies that went public last year are down 80% or more from their highs.
“This is the worst IPO market selloff in a decade,” said Matt Kennedy, senior strategist at Renaissance Capital. He cites excessive valuations for 2021 deals, rising interest rates and deteriorating corporate fundamentals.
As high-growth stocks have slumped, the IPO market has largely dried up, with 39 deals grossing $3.9 billion so far in 2022. That’s a 90% drop from at the level of the same period of 2021. For the whole of last year, nearly 400 companies went public, taking in $142 billion, according to Renaissance. The count excludes special purpose acquisition companies.
The sinking has resulted in some good business, especially in companies with good growth prospects and strong balance sheets. Some stocks to consider from the 2021 crop of IPOs are
all the birds
Markets (HOOD), and
(WRBY). Kennedy says his firm’s clients “scour the list of IPOs for the past five years” looking for opportunities.
Investors can purchase a wide range of recent IPOs through the
listed index fund (IPO), whose shares, at $30, are down nearly 50% this year. They did much worse than the
by 27%, and the
index, down about 18%. The ETF is down nearly 60% from its 2021 peak.
The Renaissance ETF has held 100 IPOs over the past three years. His five biggest investments—
Focus on video communications
(ZM) — make up about 25% of the fund.
Robinhood is emblematic of the 2021 IPO class as its stock is down almost 90% from a high of $85 per share to around $10. But the company has $6.2 billion, or about $7 per share, in cash. Its young and often aggressive investor base helped fuel the meme-stock frenzy of early 2021 in stocks such as
AMC Entertainment Holdings
Robinhood has its critics, including
(BRK.A, BRK.B) Vice Chairman Charlie Munger, who said it encouraged short-term trading by novices and turned investing into a game. He also has fans. “It was never just about trade; it was about democratizing access to financial services,” says Devin Ryan, analyst at JMP Securities. He rates the stock Outperform, with a price target of $36.
Ryan sees new products, such as cash management accounts and expanded cryptocurrency services, driving revenue later this year.
|Company / Symbol||Recent Price||Change since the beginning of the year||% change from IPO price*||Market value (bil)||2022E EPS||Net cash per share|
|All birds / BIRD||$4.68||-69.0%||-68.8%||$0.7||-$0.42||$1.61|
|Poshmark / POSH||11.02||-35.3||-73.8||0.9||-0.89||7.64|
|Rivian Automotive / RIVN||29.61||-71.4||-62.0||26.7||-6.46||16.86|
|Warby Parker / WRBY||4:44 p.m.||-64.7||-58.9||1.9||0.09||2.00|
|ETF / Symbol||Largest Holdings|
|Revival IPO / IPO||$30.40||-49.8%||UberTechnologies
Focus on video communications
* Using reference price for WRBY which became public via direct listing. E=estimate
Source: Bloomberg; Capital of the Renaissance; business reports
Robinhood operated at a loss in the first quarter as revenue fell 43%, but cash burn was just $62 million. Management is targeting profitability, based on adjusted earnings before interest, tax, depreciation and amortization, or Ebitda, by the end of the year.
Ryan says Robinhood’s platform and customer base could attract interest from potential buyers, given the drop in share price. But he sees the current valuation as “well below a level we think the company might consider”.
(RIVN) is intriguing because its stock, which peaked at $179 after its IPO in November, fell to $19 earlier in May. That valued the company at just over the $15 billion in net cash on its balance sheet as of March 31.
Shares have since rallied to nearly $29. The upstart electric vehicle maker is losing about $5 billion a year as it seeks to ramp up production of high-end pickup trucks and sport utility vehicles; production was only 2,553 vehicles in the first quarter. Profitability could be years away. Rivian says it has enough money to last until 2025, when it could make more than 350,000 vehicles.
Wells Fargo analyst Colin Langan wrote recently that the company “has a small margin of error in all aspects of its business. Its limited production and trading history leaves a lot to be seen. It has a weight rating equal and a price target of $24 on Rivian.
A better EV game, recently profiled in Barronscould be
(GM), which is funding its transition to electric vehicles with huge profits from SUVs and pickup trucks powered by internal combustion engines.
Warby Parker is disrupting the US eye care market by offering stylish eyewear for as little as $95, both online and in 169 retail stores nationwide. The stock, at around $16, is down 70% from its 2021 high of $60.
The company was recommended by Henry Ellenbogen, Chief Investment Officer at Durable Capital Partners, during the Barrons Roundtable in early 2022. Ellenbogen sees a significant growth opportunity for Warby Parker by offering eyewear at around half the price of traditional competitors and expanding offerings like contact lenses and eye exams. Its overall market share is only about 2%.
The eyewear merchant is now operating at a loss and its first quarter results are below investor expectations. Warby Parker expects revenue growth of 20% to 22% this year to around $655 million.
In an email to Barrons, Ellenbogen said he expects revenue growth to accelerate to around 20% by the end of this year, from 10% in the first quarter. He forecasts margins above 20% as Warby Parker gets “leverage on a new glass manufacturing plant, maturing stores and business expenses.” The company is valued at $1.9 billion, about three times projected annual sales for 2022, and has $230 million, or $2 per share, in cash.
Allbirds has carved out a place for itself in eco-friendly footwear. His signature wool sneakers, priced around $100 a pair, are popular in Silicon Valley. The company’s focus on natural materials, with a line of sneakers using eucalyptus leaves, has resonated with socially responsible investors.
The shoemaker went public at $15 in November, and the stock rose to $32 before falling to $4.50 after a disappointing first-quarter earnings report and lower revenue forecast for the company. whole year. Allbirds sees sales grow 21% to 24% in 2022, to around $340 million. Some analysts don’t see profitability until 2024.
However, Allbirds shares may have bottomed as the company, now valued at $700 million, has net cash of $240 million, or $1.61 per share, and a tangible book value of $2.58 per share. “While the path to profitability is arguably murkier amid macro factors, the valuation unfairly puts Allbirds in line with struggling retailers,” Morgan Stanley analyst Alex Straton wrote after the recent earnings report. of the society. She sees a favorable risk/reward outlook for the stock, and has an overweight rating and a price target of $12.
Companies such as Poshmark and
(REAL) which offer online marketplaces for second-hand clothing and accessories have been hit hard as investors worry about high marketing spend and future profitability. Poshmark, which trades around $11, is more budget oriented than RealReal. Items priced over $200 are estimated to account for approximately 20% of gross merchandise sales.
Poshmark has the best balance sheet, with nearly $600 million, or $7.64 per share, in net cash as of March 31. The company trades for approximately one time annual sales, excluding cash. Poshmark is expected to lose $1 a share this year, but cash increased last quarter.
Following its latest results, JMP Securities analyst Andrew Boone wrote that Poshmark was showing “early signs of a return to marketing effectiveness” and that it was continuing to “improve its core service.” He rates it Outperform, with a price target of $20.
During Friday’s selloff, which briefly tipped the S&P 500 into a bear market, those broken IPOs lost more value. But it could make their shares even more appealing.
Write to Andrew Bary at email@example.com