After a bubbling year for IPOs, 2022 looks like a bust. Shares in many companies that went public last year are down 80% or more from their highs.
“This is the worst IPO market sell-off in a decade,” said Matt Kennedy, senior strategist at Renaissance Capital. He cites inflated valuations for the 2021 offerings, rising interest rates and deteriorating corporate fundamentals.
As high-growth stocks have tumbled, the IPO market has largely dried up, with 39 deals raising $3.9 billion so far in 2022. That’s down 90% from the same period in 2021. For all of last year, nearly 400 companies went public, raising $142 billion, Renaissance says. The count excludes special purpose acquisition companies.
The debris has unearthed some bargains, particularly among companies with good growth prospects and solid balance sheets. A few stocks from the 2021 IPO crop to consider
Markets (HOOD) and
(WRBY). Kennedy says his firm’s clients are “scouring through the list of IPOs over the last five years” in search of opportunities.
Investors can buy through a wide range of recent IPOs
IPO of the Renaissance
exchange-traded fund (IPO) whose shares are down nearly 50% this year at $30. You did significantly worse than them
Discount of 27%, and the
Index down about 18%. The ETF is down nearly 60% from its 2021 peak.
The Renaissance ETF holds 100 IPOs from the last three years. His five biggest investments—
Zoom video communication
(ZM) – make up around 25% of the fund.
Robinhood is emblematic of the 2021 IPO class as its shares have fallen almost 90% from a high of $85 per share to around $10. But the company is sitting on $6.2 billion, or about $7 a share, in cash. Its young, often aggressive investor base helped propel the early 2021 meme stock frenzy into stocks like
AMC Entertainment Holdings
Above all, Robinhood has its critics
(BRK.A, BRK.B) Vice Chairman Charlie Munger, who has said it encouraged short-term trading by beginners and turned investing into a game. It also has fans. “This was never just about trading; it was about democratizing access to financial services,” says Devin Ryan, an analyst at JMP Securities. He rates the stock as Outperform, with a price target of $36.
Ryan sees newer products like cash management accounts and advanced cryptocurrency services boosting sales later this year.
|company / ticker||Current price||YTD change||% change from IPO price*||market value (car)||2022E EPS||Net cash per share|
|Allbirds / BIRD||$4.68||-69.0%||-68.8%||$0.7||-$0.42||$1.61|
|Poshmark / POSH||02/11||-35.3||-73.8||0.9||-0.89||7.64|
|Rivian Automotive / RIVN||29.61||-71.4||-62.0||26.7||-6.46||16.86|
|Robinhood Markets / HOOD||21.10||-42.5||-73.1||8.9||-1.25||7.17|
|Warby Parker / WRBY||16.44||-64.7||-58.9||1.9||0.09||2.00|
|IPO of the Renaissance / IPO||$30.40||-49.8%||Uber Technologies
Zoom video communication
*Usage at reference price for WRBY that went public via direct listing. E=estimate
Source: Bloomberg; Renaissance capital; company reports
Robinhood operated at a loss for the first quarter as revenue fell 43%, but cash burn was just $62 million. Management is targeting profitability by year-end based on adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda.
Ryan says Robinhood’s platform and customer base could attract potential buyers given its low share price. However, he sees the current valuation as “well below levels that we think the company could be considering.”
(RIVN) is intriguing because its stock, which peaked at $179 after its IPO in November, fell as low as $19 in early May. That valued the company with just over $15 billion in net cash on its balance sheet as of March 31.
Since then, shares have rallied to almost $29. The burgeoning electric vehicle maker loses about $5 billion annually as it tries to ramp up production of high-end pickup trucks and sport utility vehicles. Production was just 2,553 vehicles in the first quarter. Profitability could still be years away. Rivian says it has enough money to last until 2025, when it could manufacture more than 350,000 vehicles.
Wells Fargo analyst Colin Langan recently wrote that the company “has a low margin of error in all aspects of its business. Its limited manufacturing and commercial history leaves much to be seen.” He has an Equal Weight rating and a $24 price target on Rivian.
A better EV game recently profiled in Barron’s might be
(GM), which is funding its transition to electric vehicles with huge profits from SUVs and pickup trucks powered by internal combustion engines.
Warby Parker is revolutionizing the US eye care market by offering stylish prescription eyewear for just $95 both online and in 169 retail stores across the country. The stock is down 70% from its 2021 peak of $60 at about $16.
The company was recommended by Henry Ellenbogen, chief investment officer of Durable Capital Partners, at the Barron’s Roundtable in early 2022. Ellenbogen sees a significant growth opportunity for Warby Parker in offering eyewear at about half the price of traditional competitors and expanding offerings like contact lenses and eye exams. The total market share is only about 2%.
The eyeware retailer is now operating at a loss and its first-quarter results fell short of investors’ expectations. Warby Parker sees sales growing 20% to 22% to about $655 million this year.
In an email to Barron’s, Ellenbogen said he sees revenue growth accelerating from 10% in the first quarter to the mid-20s by the end of this year. He forecasts margins in excess of 20% as Warby Parker gains “leverage on a new glassmaking facility, aging business and corporate spending.” The company is valued at $1.9 billion — about triple 2022 annual revenue guidance — and has $230 million, or $2 per share, in cash.
Allbirds has carved a niche for itself with eco-friendly shoes. His signature wool sneakers, which cost around $100 a pair, are popular in Silicon Valley. The company’s focus on natural materials, with a line of sneakers using eucalyptus leaves, has resonated with socially responsible investors.
The shoemaker went public at $15 in November, and shares rose to $32 before falling to $4.50 recently after a disappointing first-quarter earnings report and a lowered full-year sales guidance. Allbirds sees sales up 21% to 24% in 2022 to about $340 million. Some analysts don’t see profitability until 2024.
Allbirds stock may have bottomed, however, as the company, now valued at $700 million, has net cash of $240 million, or $1.61 per share, and a tangible book value of 2 $.58 per share. “While the path to profitability is arguably cloudier given macro factors, Allbird’s valuation unfairly puts it in line with struggling retailers,” wrote Alex Straton, an analyst at Morgan Stanley, following the company’s latest earnings report. She sees a favorable risk-reward outlook for the stock and has an Overweight rating with a price target of $12.
Companies like Poshmark and
(REAL), which offers online marketplaces for second-hand clothing and accessories, was hit hard as investors worried about heavy marketing spend and future profitability. Poshmark, which trades around $11, has more budget focus than RealReal. Items priced over $200 are estimated to account for approximately 20% of gross merchandise sales.
Poshmark has the better balance sheet with nearly $600 million, or $7.64 per share, in net cash as of March 31. The company trades at approximately 1x annual sales excluding cash. Poshmark is expected to lose $1 a share this year, but cash has increased over the most recent quarter.
Following its most recent findings, JMP Securities analyst Andrew Boone wrote that Poshmark is “showing early signs that marketing efficiency is returning” and that it continues to “improve its core service.” He rates it Outperform, with a price target of $20.
These failed IPOs continued to fall in value during Friday’s sell-off that briefly sent the S&P 500 into a bear market. But that could make their stocks even more inviting.
write to Andrew Bary at [email protected]