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This year has been quite a wild ride for people, governments, companies, and the stock market.
Tech stocks as a whole have experienced a strong tailwind amid the pandemic, as consumers had to rely on technological devices and platforms to work, study, and entertain themselves.
In this context, some of the hottest private companies in the tech realm have decided to put their equity out on the open market to take advantage of the current favorable environment.
That said, despite all the hype and media coverage that some of them have received, not all of these initial public offerings (IPO) have done well since they were launched and, in the following article, business consultant Jasdeep Singh takes a closer look at the performance of three of the most interesting startup stocks released this year.
Lemonade (LMND)
Lemonade is part of the growing ‘insurtech’ industry, which aims to disrupt the highly-traditional insurance business in a way that benefits consumers.
This firm offers customers homeowners, renters, and pet insurance in the United States with monthly rates starting at $5. The company offers prospective clients the possibility of getting insured in 90 seconds and getting any future claims paid in a matter of minutes.
The company’s shares were launched on July 2 at an initial price of $29 per share while the stock soared to as much as $69.41 during the first day of trading.
However, since its inception, the performance of Lemonade shares started to decline, with the stock dropping to the mid 40s until its last earnings call on 12 November, which propelled the stock to an intraday all-time high of nearly $112 per share.
To date, if you bought LMND shares at the July 2 closing price of $69.41 you would have earned a 157% return on your investment.
Vroom Inc (VRM)
Online used vehicle marketplace Vroom was also one of the hottest IPOs launched this year. The company offers an easy-going business model to relieve consumers from the trouble of having to visit a used car dealership. This platform has disrupted the entire industry while attracting significant interest from investors who see Vroom’s way of doing things as the future of the used car market.
Vroom charges a fixed price for the cars it sells, extends a limited 90-day/6,000-mile warranty, and has multiple financing opportunities. The stock was launched in the open market on June 9 with an initial price of $22 per share but investors were so eager to get involved that they ended up pushing the price to a first-day closing of $47.90.
The stock went on to move even higher in the months following its IPO, reaching a peak at $73.85 on 01 September to then decline sharply to the low 30s after the company sold 10.8 million additional common shares.
Since its inception, Vroom shares have delivered a 12.9% loss for those who bought the stock at its first-day closing price.
BigCommerce (BIGC)
Finally, Singh highlights the e-commerce platform BigCommerce, which was also among the most attractive IPOs in town in 2020.
It seems that its CEO’s decision to turn down a seemingly handsome offer from accounting software giant Intuit – which offered to buy the firm for $1.5 billion – turned out to be a great decision. The company’s shares soared to as much as $72 per share during their first day of trading – exactly three times higher than their $24 listing price.
BigCommerce, which offers a portal through which vendors can build e-commerce websites that come with multiple marketing, analytics, and SEO capabilities, is a strong rival to the best-known e-commerce platform, Shopify. BigCommerce has now become a $5 billion company based on its latest closing price.
The price of its shares soared strongly a few weeks after the IPO, moving from that $72 first-day closing to as much as $160 during the intraday activity of August 27. However, since then, shares have plunged back to the $70 level, virtually erasing all of the gains for those who bought during the first day of trading.
Bottom Line
Even though tech stocks have been ‘hot’ this year, IPOs remain a risky bet. The fundamentals underlying their businesses and overall performance are many times still fragile and run into challenges as they try to scale up and face increased competition.
This year, although there have been quite a few winners, there were also some underperformers. That said, the definite champions of this latest wave of public offerings have been the financial institutions that have underwritten the deals. These institutions have made large profits by disposing of any shares immediately after the IPO shares were released.
