The initial public offerings of Airbnb (ABNB) and DoorDash (DASH) kicked December off with a bang for initial public offerings — capping off what has been a remarkable, and unexpectedly, robust year for debuts. After raising more than $3 billion each, Airbnb rose 113% from its $68 a share IPO price on Thursday and DoorDash surged 86% on its first day of trading Wednesday.
They’re just the latest examples. North America has seen 428 IPOs this year, raising a total $143 billion, according to Bloomberg data.
“2020 will go down in the record books, not just as the year of COVID, but as the year of the IPO,” said Kathleen Smith, principal at Renaissance Capital, which researches pre-IPO companies and administers the Renaissance IPO ETF. “Given the volume that we’ve seen in IPOs, the second half of 2020 we’re on record to beat any levels we have seen since ‘99 and 2000.”
As Smith told Yahoo Finance Live, she sees three reasons behind the hot market for IPOs this year:
Recent IPOs are doing well. Smith’s ETF, which tracks companies that have gone public in the past two years (including Uber and Zoom), has more than doubled this year.
“When investors are making money on the ones that have already come out,” she said, “ they’re going to be interested in looking at new ones.”
Secondly, interest rates are low, “which is very favorable for growth companies, and it looks like that should continue for some time.”
And finally, the world has changed in 2020, and investors have obviously noticed, with a surge in “interest that investors have in companies that have benefited from the digital economy, and from biotech and some of these new vaccines,” Smith said. “The new economy companies are really the bread and butter of the IPO market.”
Zoom (ZM) is one example. Shares of Yahoo Finance’s Company of the Year has nearly sextupled this year, electrified by work-from-home demand. Between its April 2019 IPO and the end of last year, it rose by less than 10%.
Moderna (MRNA) is another. Also a component in the IPO ETF, the biotech firm had its debut in December 2018. But it was only this year, as it was developing what ended up being a promising vaccine to prevent COVID-19, that its stock went parabolic, rising nearly 700%.
Investors eager to ride the IPO wave have more recent examples as well. Shares of cloud-computing company Snowflake (SNOW) have more than tripled since its September introduction. And demand hasn’t been limited to tech, with Warner Music Group (WMG) posting a more modest but still market-outperforming 33% gain since its June IPO.
And of course, the frenzy this year has also been fueled by the boom in special-purpose acquisition companies (SPAC). In fact, the year’s largest U.S. IPO was billionaire Bill Ackman’s SPAC called Tontine Holdings (PSTH.U), which raised $4 billion in July and has risen 18% since — even though it has yet to find an acquisition target.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9 a.m. ET - 11 a.m. ET.
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