2021 IPOs, SPACs, and Direct Listings: Is Anything Salvageable?
Over 1000 companies went public in 2021, and a majority of these companies are trading below their IPO price.
Bloated valuations in the private market, may have hurt some new companies in the public markets.
We look at 80 companies to see if there is anything worth salvaging from 2021.
Companies that went public in 2021 had a lot to contest with. On top of normal market conditions, there were the lingering effects of COVID-19 from 2020, a new strain of COVID-19, a new presidential administration, and rising inflation. The result was a bad 2021 for hundreds of companies after their public debuts.
Companies like Coinbase ($COIN) and Robinhood ($HOOD), which are popular brands that had success as private companies, didn't fare well in their first year as public companies. And if Coinbase and Robinhood couldn't attract investors, what chance did smaller lesser known companies like Allbirds ($BIRDS) and Tredup ($TDUP) have?
Some blame for the stock performances displayed below could be put on private market investors. The fear of missing out may have driven venture capitalists to fund startups at overvalued prices. Over the past three years, many unicorns, that carried plenty of hype and fanfare in the private markets, underperformed when they became public companies, like Uber ($UBER), Lyft ($LYFT) and Slack (acquired by Salesfoce.com ($CRM)).
But the story today isn't about the failures of 2021. The story today is that one or more of these companies could be big winners in the long run. In the early 2010s Netflix ($NFLX) traded for under $10 a share, 33% below its IPO price, and Tesla ($TSLA) traded slightly below its $17 IPO price for a brief time. An investor who made either one of those companies their main investment back then would have been rewarded more than generously for their decision.
Some Bright Spots
Numbers don't lie, but at times they don't convey the full story. Affirm Holdings ($AFRM) for example, it's in the section of companies whose stock price is 35% below its IPO price. After its IPO, Affirm did trade up to $168 per share, marking a 242% increase from its IPO price. The run in the stock was fueled by the hype around buy-now-pay-later. But critics of the buy-now-pay-later movement made enough noise to get the attention of governments, which sparked probes into BNPL companies. Investigation, and the possibility of regulation, scared investors away from Affirm, causing its stock price to crash.
AppLovin's ($APP) stock was another one that went up post IPO. The company went public in April 2021 at $80 per share. The stock price tanked out of the gate, but then slowly marched its way to $114 per share. The upward momentum stopped after the company reported its earnings for the third quarter of 2021. While AppLovin did grow revenue 90% year-over-year during the quarter, the company missed its earnings per share estimates by $0.10. The stock would begin selling off days after the earnings release.
Duolingo ($DUOL) was another stock that traded to well above its IPO price only to come crashing down. Duolingo traded to over $200 per share after its IPO, but currently trades at a price 24% below its $102 IPO price.
Will Affirm, AppLovin, or Duolingo ever regain the magic they once had and hit those old highs?
Investment Ideas Based on Comps
Looking over the list of companies in the graphic, the companies that stood out to me were the ones with comps that I know of off the top of my head. Github for example, the platform was acquired by Microsoft in 2018 for $7.5 billion. GitLab ($GTLB), a similar platform, and one of the under performers of 2021, has a stock market valuation of $5.1 billion. Prior to the acquisition GitHub had 80 million repositories and 27 million developers on its platform, while making roughly $300 million in revenue. GitLab states it has 30 million users, and revenue for fiscal year 2021 came in at $152 million. Analysts expect Gitlab's FY 2022 revenue to come in at $245 million, and revenue for FY 2023 to be $325 million. At 25x revenue - what Microsoft paid for Github - that puts GitLab at a $6.1 billion valuation ($42 per share) based on FY 2022 estimates and an $8.1 billion valuation ($56 per share) based on FY 2023 revenue estimates. Google ($GOOGL) was said to be in the running to acquire Github before it lost out to Microsoft. Does that make GitLab a target for Google, and who would Google have to outbid?
There is also SquareSpace ($SQSP), which is currently valued at $3.4 billion. Its closest comp is Wix ($WIX), which the market currently values at $4.3 billion. For people looking to create their own website without any coding knowledge, Wix and SquareSpace are two very popular options. Wix made $1.2 billion in revenue in 2021, whereas SquareSpace only pulled in $784 million during the same year. Both companies generate positive free cash flow, and both companies failed to turn a profit in 2021, but SquareSpace was profitable in 2019 and 2020, whereas Wix reported a net loss during those years.
If GitLab were to be purchased for $8 billion or SquareSpace reached a $4.3 billion, they would be nice wins for the investor who purchased the stocks now, but it wouldn't be on the same level of a Netflix going from $10 to $300 or Tesla going from $29 to $400. Is there a stock in the group of stocks above that has the potential to return 20x, 30x, or even 50x?
Great Deals or Garbage
I spent most of February writing about the companies that could go public in 2022, and how investors should keep a few of those companies on their radar. But for my own investing, I'll likely spend the year digging through last year's garbage to find good investments. I've learned over time that the company that goes public, skyrockets, and just keeps going up is a rarity. The road to becoming a great company with a great stock is muddled with ups and downs. After going public at $17 a share in 2015, Shopify ($SHOP) traded to over $38 per and then slid back to $19 per share. Nine months after going public the stock would use the $19 area as a springboard to go on an incredible bull run. Shopify hit $1,600 per share in 2021.
The next Shopify, Netflix or Tesla could be on this list of beaten down stocks. For new market participants looking for investments or for a place to start their investment research, this is a good list to review. For the full list of stocks that went public in 2021, check out Stock Analysis. Good luck on your search for the next great investment.