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Investing in IPO Stocks: The Biggest of All Time and What’s to Come

Reading time: 8 minutes

This article is about companies going public, both those that have been listed recently, and those seeking a stock exchange listing sometime in the near future. Such companies offer the potential for sizeable gains, and we will be exploring some examples to illustrate this, though naturally — like all stocks — some newly-floated companies may thrive, while others may not.

IPO Stocks

It is an interesting time for new companies coming to the market, deep as we are in a multi-year bull run. Things were looking very sunny for Wall Street investors in general by late September 2018, with US stock indices pushing to new record highs, after having lost some momentum during the summer months.

The autumn months saw volatility return to the market, however, this came along with some heavy downward pressure on share prices. As the US stock market headed into the Thanksgiving public holiday, the main index benchmarks were actually down for the year: for instance, the S&P 500 fell by by 0.89% and the Dow Jones fell by 1.0%.

Despite this pressure on the stock market as a whole, you might be surprised to learn that some of the newer stocks added to the market have managed to hold on to the gains that they made this year. A handful of these IPO stocks actually boast extremely healthy gains still. Sound appealing? Then read on — we'll move on to the ins and outs of these gains shortly — but let's first explain precisely what we mean when we talk about IPOs and IPO stocks:

IPO Stocks Definition: What is an IPO?

An IPO is an Initial Public Offering. This is what we sometimes call going public or floating on the stock market. Basically, it is a previously privately-held corporation selling its first offering of stock to the public.

Companies offering stock in such a way are often reasonably new and small companies, seeking to bring in greater funds through the sale of this stock, in order to finance future growth. We should note, of course, that this by no means has to be the case. Not all companies offered in an IPO are small and some can be vast — as was the case with Chinese internet retail giant Alibaba.

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Alibaba: The Biggest IPO in History

One of the bigger success stories of IPOs in recent years was Alibaba's flotation on the New York Stock Exchange in September 2014, with the ticker BABA. It was, in fact, the largest IPO in history. Its share price opened at $92.70 on its first full day of trading on NYSE and just over four years later, on 27 November 2018, its share price closed at 156.46.

This meant that there was an increase of 69% from that opening price. The Chinese internet sales giant is the world's largest retailer, with a market capitalisation at the time of writing of $404.4 bn. To put that into context, that's larger than Facebook!

The company recently set a new record with its sales for 'Singles Day', vending merchandise worth more than $30.8 billion in a span of just 24 hours. By way of comparison, widely reported estimates for 2018's record Cyber Monday sales put US online sales at $7.9 billion — that's all of the US online retailers combined!

The Largest IPOs of all time

There are a number of companies that have floated this year and have seen their share prices thrive. The following table shows five such companies with double-digit growth, or greater:

Company

Ticker

Industry

First trading day

Amount raised in IPO

Alibaba

BABA

Technology

18-Sep-14

$25 billion

General Motors Company

GM

Automotive

16-Nov-10

$20.1 billion

Agricultural Bank of China

ABC

Finance

7-Jul-10

$19.2 billion

Industrial and Commercial Bank of China

ICBC

Finance

19-Jan-07

$19.1 billion

NTT DOCOMO, Inc.

TYO

Telecommunications

22-Oct-98

$18.4 billion

Visa Inc.

V

Finance

18-Mar-08

$17.9 billion

AIA Group Limited

AAIGF

Finance

21-Oct-10

$17.8 billion

Enel

ENLAY

Utilities

1-Jan-99

$17.4 billion

Facebook

FB

Technology

1-May-12

$16 billion

Deutsche Telekom AG

DTE

Telecommunications

17-Nov-96

$13 billion

We have to stress, of course, that this performance to date is no promise of future gains, but it is remarkable that these fledglings of the stock market have achieved such strong performance, in spite of recent headwinds. So what other new flotations are in the pipeline? Let's move on now to discuss just a few of these:

Last Year's Biggest IPOs

2019 was a big year for tech IPOs, with some companies going public including Uber, Lyft, SmileDirectClub and Change Healthcare.

Uber

CEO Dara Khosrowshahi, the former chief of Expedia, took over the reigns at Uber in the summer of 2017 and identified 2019 as a target for an IPO. The Wall Street Journal reported in October 2018 that the value of such a flotation could be as high as $120 billion, based on underwriting proposals from Goldman Sachs and Morgan Stanley.

When the company offered 180 million shares on Friday May 10, 2019, shares were priced at $45, valuing the company at $82.4 billion.

Lyft

When we talk about Uber, it's natural to talk about its rival Lyft as well, as the two companies have been fighting for market share in this relatively new field for several years now. While Uber operates in a large number of countries across the globe, Lyft currently operates solely in US and Canada. Estimates gauge Lyft is currently holding around 32% of the US rideshare market.

Lyft went public on March 29, 2019. The company priced its IPO at $72 a share, only to have it spike 21% on launch to $87.24!

Change Healthcare Inc.

Change Healthcare is a software-as-a-service platform that is changing medicine. The company has created a platform that includes a full set of software, analytics, technical services, network solutions and payment systems. Their aim is to optimise the interaction between patients, pharmacies, hospitals and research laboratories.

In their IPO on June 27, 2019, Change Healthcare Inc. aimed to raise $1 billion, with the expected price offering of $16 to $19 per share totalling $936.4 million. Instead, the stock released at $13 under the ticker CHNG. This was below the expected range, and brought the company's total market capitalisation to $557 million.

SmileDirectClub

SmileDirectClub was one of September's largest IPOs, with 58.5 million shares of the SmileDirectClub being released at $23, above the $19-$22 range. This gave the company a valuation of $9 billion, nearly triple it's $3.2 billion valuation less than one year ago in it's last round of funding!

So what is SmileDirectClub? SmileDirectClub believes that everyone deserves a smile they love. How do they achieve this? With direct-to-consumer teeth straightening products. While traditional orthodontists charge between $5,000 and $8,000 for a procedure, SmileDirectClub's products are often below $2,000 and can give customers a new smile in just 6-10 months. Established in 2014, the company has grown to $622 million in trailing sales.

Companies Going Public in the Future

There are a number of expected upcoming IPOs that are highly anticipated, featuring well-known tech stocks with potentially huge valuations. Let's look at three of the hottest names that may float in 2020.

Airbnb

Online home-rental company Airbnb announced in late November 2018 the appointment of longtime-Amazon executive Dave Stephenson as its Chief Financial Officer (CFO), removing at least one of the obstacles in the way of an IPO. Of the move, the startup's CEO Brian Chesky stated in an official press release that Airbnb was just getting started.

In the years ahead, Dave will be Airbnb's quarterback for long-term growth." Chesky has previously stated that Airbnb will be ready for an IPO in 2019, and the company revealed in November 2018 that it had generated revenue of more than $1 billion in the third quarter of 2018.

Ant Financial

Ant Financial is a financial technology affiliate company of Chinese e-commerce leader Alibaba (NYSE: BABA).

It runs one of the most popular mobile payment service in China called "Alipay" and is also operating an investment fund and an online bank. Already in 2018, rumours made rounds that Ant Financial might go public with signs around an IPO intensifying for 2020.

Gitlab

Gitlab markets a platform that helps software developers improve their productivity. What's special about Gitlab is that it is delivered as a single application, meaning that all features developers might need, they get right out of the box.

Gitlab is already well-known among developers, with already more than 100,000 organizations across the world using its development platform. The IPO is planned for late 2020 on Nov. 18.

New IPO Stocks: to Invest or Not?

We've looked at some interesting success stories, along with some other companies that may potentially join the stock market in the future. As with investing in the stock market in general, you need to pick wisely. You should read about who is running the company, and weigh up the long-term prospects of the company's business model, in order to aid your decision-making process.

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Disclaimer: This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.