IPO Markets Are Back in Full Swing

THE BRIEF: Like a Kid in an IPO Store

Retail stores aren’t the only place shoppers are looking to return to. After a 3-month pandemic induced halt in activity, the Initial Public Offering (IPO) market takes off with a wide selection of new public companies.

• Take your pick at the most exciting upcoming IPOs: Lemonade, Quicken Loans, Snowflake, Amwell

THE EXPLANATION

An IPO is the first time a company sells stock to public investors. This marks the transition from a private company to a public company and the first time its stock can be bought and sold on stock exchanges.

• IPOs allow early private investors to cash out, provides the company with additional capital to grow, and gives the public an opportunity to invest in upcoming companies.

Recessions and market crashes normally reduces the number of IPOs and COVID was no exception. IPO activity came to a near halt between March and May but a run-up in stock prices has signaled to companies that investors are willing to put their money back in stocks again.

Companies time their IPOs to take advantage of investor demand and market conditions. E-commerce companies have outperformed throughout COVID and companies are looking to capitalize on this trend.

• Amwell, Quicken Loans, and Lemonade… Companies that are in the process of going public are all reliant on their digital platform to sell their products.

On the flip side, it is unlikely that we will see many businesses in sectors negatively impacted by COVID go public anytime soon. A slow recovery in the travel and hospitality sector could further delay AirBnB’s long-awaited IPO.

THE ACTION

There are hundreds of IPOs in a year but a select few will dominate the headlines. Highly anticipated IPOs for 2020 include:

• Lemonade… Online millennial-friendly insurance
• Quicken Loans… America’s largest mortgage lender
• Amwell… Online healthcare and telemedicine services
• Snowflake… Cloud-based data-warehousing
• Palantir… Data analytics and national security

The Renaissance IPO ETF ($IPO) invests in newly public US companies with a large allocation to technology IPOs. This is a good way to invest in a basket of the largest IPOs without taking a bet on individual companies. These companies are removed after two years of being public.