Retail investors bought $18.85 million of Robinhood stock during the trading app’s first day in the public market, lower than other major IPO debuts, according to Vanda Research data released Friday.
Retail investors poured more money into this year’s launches of crypto exchange Coinbase and Chinese ride-hailing app Didi Global. In April, $57.4 million in Coinbase stock was purchased, and in June, that group picked up $69.8 million in Didi stock, said Vanda, whose VandaTrack arm watches activity in 9,000 individual stocks and ETFs in the US.
The $19.7 million of DoorDash shares purchased in the food delivery company’s December 2020 debut was just ahead of retail purchases of Robinhood stock.
Robinhood shares had a rough first session on Thursday, dropping 8.4% to end at $34.82 after being whipsawed. The IPO price of $38 was at the low end of its targeted range of $38 to $42 per share.
Social media app Snap tops the list at $143 million in shares purchased by retail investors, said Vanda. Snap went public in March 2017. Uber was right behind that, at $139.9 million in May 2019 for the ride-hailing app.
A decade after Marc Andreessen declared that software was “eating the world,” his VC firm has notched a succession of multibillion-dollar exits.
Andreessen Horowitz, founded in 2009, hit the ground running early with a few IPOs among its portfolio companies in its first few years: Groupon and Zynga in 2011, and Facebook in 2012. The firm, known as a16z, reportedly bought a stake in Twitter, which went public in 2013, through secondary markets.
That’s also the case for a couple of more recent public debuts within its portfolio: Airbnb and Roblox. Andreessen Horowitz backed Roblox in 2020 as part of its later-stage portfolio.
But several of its more substantial investments have borne fruit recently. According to Crunchbase, the firm has had stakes of 5% or more in eight companies that have gone public since 2011. All but one have gone public in the last two years.
The VC firm was the largest institutional investor in Coinbase prior to the company’s direct listing in April. Andreessen Horowitz’s stake, based on the company’s recent share performance, is worth around $6 billion.
Here are all the public companies since 2011 in which a16z held at least a 5% stake. For most of the companies, the VC firm got in early.
Last week John Coates, the Harvard academic who is acting director of the Securities and Exchange Commission’s division of corporate finance, caused a kerfuffle in the world of SPACs.
In a highly readable (really!) treatise on blank-check companies, as special-purpose acquisition companies are also known, Coates issued a warning to the investment bankers, lawyers, entrepreneurs, part-time board members, and other charlatans exploiting the trend. Plenty could go wrong, he said, when those who raise SPAC funds then buy a company. He ticked off a list of concerns from conflicts of interest to celebrity involvement to the potential ordinary investors being lured by “baseless hype.”
Coates focused on the use of financial projections in SPAC deals. Because a SPAC buying a target technically is a merger, not an IPO, most have assumed it’s okay to ignore IPO rules, which prohibit financial projections that could be used to bamboozle investors. Coates cautioned SPAC sponsors against becoming too comfortable with this loophole-and suggested the SEC might make rules to clarify matters.
The SEC official didn’t give specific examples of “baseless hype,” but he might have mentioned the way companies describe the market opportunity in front of them. SPAC after SPAC, in presentations to investors, describe the “total addressable market” they are attacking. The implication is that even if they have little or no business today their potential is huge.
Like the financial projections that worry the SEC, these market-size estimates – nearly always rosy and often far out into the future – ought to give pause to investors. SPACs tend to buy unproven companies, like flying car manufacturers and space “infrastructure” companies. (If they were proven, the companies likely would go the more respectable IPO route.) Because investors can’t possibly know what these startups might become, the potential market size estimates are important for making an investment decision.
Flying car companies are particularly good at this cheerful prognostication. Three have announced plans to become SPACs so far. Two, Archer Aviation and Lilium, say their market could be as big as $3 trillion by 2040. Both based their guesstimate on the same 2018 Morgan Stanley research report by analyst Adam Jonas. The far-into-the-future estimate applies a kitchen-sink approach to market sizing by including revenue projections for several industries, including airlines, cargo, ride-hailing, and “key accelerants” like batteries, communications equipment, and software.
I asked Morgan Stanley for a copy of the Dec., 2018, Jonas report, “Flying Cars: Investment Implications of Autonomous Urban Air Mobility,” so I could dig into the assumptions Archer and Lilium are relying on. A Morgan Stanley spokeswoman said “we decline at this time, due to this report being outdated.” Good point, though one wonders why it’s good enough for companies about to include average investors as their shareholders.
Joby Aviation, another flying car company has a more modest, but also aggressive estimate of its potential market. It told investors it saw a $500 billion addressable market in the US alone and a global market of “north of $1 trillion.” Joby didn’t cite a date by which this market will appear. But it did source its estimate to another 2018 study, this one by tech consultant Booz, Allen, Hamilton.
That study, prepared for NASA, is available online. A summary notes that the US prognostication is “for a fully unconstrained scenario” and that factors like weather, certification, regulatory hurdles, and public perception could reduce its near-term estimate to 0.5% of the total, or $2.5 billion. As it happens, the BoozAllen consultant who wrote the report, Rohit Goyal, now works in “product intelligence” for Joby, according to his LinkedIn profile. Investors might do well to ask him about the report’s assumptions.
Let’s be clear about something: Making a guess at the total size of a potential market is a valuable exercise for investors. The late Don Valentine, a founder of Sequoia Capital, was famous for paying attention to the size of the market opportunity to the exclusion of all else. But he was making risky venture-capital bets. Lise Buyer, an advisor to companies that go public, and a fund manager, research analyst and VC at various stages of her career, told me it’s “totally legit for investors to ask what’s the biggest the market could be if everything goes right. But I think they will roll their eyes when the numbers get too big.”
There are plenty of good books about the opioid scourge, including Beth Macy’s “Dopesick” and the just-out and rapturously reviewed Sackler family takedown “Empires of Pain” by Patrick Radden Keefe. Eyre’s book focuses on the role of the big drug distributors – Cardinal Health, McKesson, and AmerisourceBergen – in pushing pills for years that led to an overdose epidemic. Each of these companies is locked in multi-state litigation to resolve the type of allegations Eyre details. CEOs of each, for what it’s worth, signed the Business Roundtable’s 2019 statement of purpose, which, among other things, promises to “respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.” After reading this book you’ll be hard pressed to judge their actions respectful or sustainable.
I planned to write an entire column on hollow corporate statements and how they relate to the current climate of corporate activism and political awareness. But the lead editorial in the current issue of The Economist published a perfect distillation of what I wanted to say. So instead, I’ll link to it here.
Adam Lashinsky is a Business Insider contributor and former executive editor at Fortune magazine, where he spent 19 years. He is the author of two books: “Inside Apple” (about Apple) and “Wild Ride” (about Uber).
Robinhood is looking to allow its users to buy directly into initial public offerings, including its own, alongside institutional investors, Reuters first reported.
While the popular trading app – which confidentially filed IPO paperwork on March 23 – could easily implement this for its own debut, it remains to be seen how other companies will react to this move, knowing how limited allocations are to investors during new listings.
Further, Robinhood would still need to get the approval of US regulators and negotiate with companies and their brokerages, sources told Reuters.
Robinhood users and retail traders are currently not able to buy stocks of newly listed companies until they start trading, unlike Wall Street investors. If this initiative succeeds, it will be considered a win for retail traders as shares often trade higher when they debut in what is commonly known as a first-day pop.
Car-rental startup Turo aims to list its shares publicly in 2021 after a strong end to 2020, the company’s CEO told The Wall Street Journal in a report published Friday.
Turo allows people to offer their private vehicles for rental, a car-sharing alternative to industry giants such as Hertz or Avis.
CEO Andre Haddad isn’t yet sure whether the company will pursue a traditional IPO or an alternative like a blank-check-company merger, according to The Journal.
The startup slashed costs and laid-off workers in 2020 to shore up extra cash. Those actions helped the company cut its second-half loss to $7.2 million, down from $46.9 million in the second half of 2019.
Turo – a car-sharing app – plans to publicly list its shares in 2021 following a strong 2020 performance, The Wall Street Journal reported on Friday.
The startup ended 2020 in a healthy financial position despite the coronavirus pandemic. Layoffs and slashed marketing costs extended Turo’s cash runway by three years, and the company reported its first profitable quarter in 2020, according to the report. Turo CEO Andre Haddad expects the company to turn a full-year profit in 2022.
Turo’s website allows users to rent their own cars, whether they’re compact sedans or high-powered supercars. Those looking to rent private vehicles can then select from Turo’s marketplace instead of offerings from a legacy company like Hertz or Avis. Turo takes a cut of rentals’ revenue.
Haddad told The Journal he is undecided on whether the company will raise capital with a traditional IPO or pursue an alternative method for listing shares. Direct listings, in which companies list shares without raising any capital, have grown increasingly popular with tech companies.
Merging with a blank-check company could also take Turo shares public. Special-purpose acquisition companies flourished in 2020 and drove record levels of IPO fundraising throughout the year. The companies raise cash through public offerings and use those funds to acquire a private firm. The merged entity then trades publicly.
Turo projects to reach a record $153 million in sales for 2020, according to The Journal. Losses in the second half of the year are estimated to fall to $7.2 million down from $46.9 million in the second half of 2019. Second-half revenue is set to land roughly 7% higher from the year-ago period too, The Journal reported.
Some of the company’s improved performance can be tied to the pandemic and its effect on travel. With air and cruise travel hit hardest by the health crisis, car rentals offered one of the few methods to get away from home in relative safety. The private-rental marketplace might also receive a boost from a pickup in auto sales through the pandemic.
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The first-day climbs revealed “euphoria and greed” last seen in the market during the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said.
“It’s silly season,” and investors need to differentiate between “a great company and a great price or value,” Rich Steinberg, the chief market strategist at the Colony Group, told Business Insider.
Airbnb’s and DoorDash’s colossal post-IPO pops reveal unsustainable euphoria in the stock market, top strategists said.
Some of the year’s biggest initial public offerings took place this week, adding to an already record year for market debuts. DoorDash soared 86% when it began trading on Wednesday after raising $3.2 billion through its offering the day prior. Airbnb leaped 115% when it began trading Thursday afternoon, pushing its market cap above $100 billion and raising $3.5 billion.
The first-day rallies, while extraordinary, show “euphoria and greed” that’s likely not been seen in the stock market since the dot-com bubble of the late 1990s, Paul Schatz, the president and chief investment officer of Heritage Capital, said. Many investors are rushing to the new stocks, wanting to get in at any price, but such massive IPO bounces usually give way to similarly outsize losses, he added.
“It’s silly season,” Rich Steinberg, the chief market strategist of the Colony Group, told Business Insider. “Investors need to distinguish the difference between a great company and a great price or value.”
Both strategists attributed some of that euphoria to the near-zero interest rates expected to stay put over the next three years. The Federal Reserve’s plan to hold rates at record lows leaves investors with fewer places to put their money, as the policy suppressed Treasury yields early in the pandemic. The Fed’s backstop of the corporate credit market placed similar pressure on bond yields.
The combination of near-zero interest rates, a “tsunami of liquidity,” and hundreds of billions in unallocated investor cash fueled the two buying sprees, Schatz said.
The week’s booms might be only the start. Investors could face “complete and utter mania” across the IPO market in the first half of 2021 as more firms look to tap the market while demand remains strong, the Heritage Capital president said. Investors should avoid trying to time such volatile debuts and instead be patient until stock prices better reflect firms’ fundamentals, he added.
“Being the last guy buying the opening of a hot IPO, at the height of this speculative excess in some of these names, typically does not end well,” Steinberg said.
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