2020 has turned into a banner year for the IPO market.
Thanks in part to pent-up demand due to the pandemic, the 383 companies that made their public debut this year have raised more than $140 billion. The amount far exceeds that raised in the past two decades. The next closest year was in 1999, during the dotcom bubble, when IPOs raised $53.42 billion, according to the Wall Street Journal.
For this week’s IPO calendar, we have Airbnb, which will be listed with the ticker “ABNB,” and DoorDash Inc., which will have the ticker “DASH,” on deck.
Online vacation rental company Airbnb, which plans to debut Thursday, recently upped its price-per-share range from $44-$50 to $56-$60, which would give the company a $42 billion valuation. That’s more than twice the $18 billion the company was worth at the beginning of the pandemic in April.
The food delivery company DoorDash, set to go public on Wednesday, plans to price its shares from $90 to $95 per share, which would give it a valuation of $36 billion or higher. The move would also more than double DoorDash’s private valuation in June, and make DoorDash the largest of its food delivery competitors to date.
If the two companies reach their IPO goals, they could add up to $78 billion more to the year’s total and place themselves among the top five IPOs of 2020. Plus, they’re not the only ones still seeking an IPO this year in a month that traditionally is slow for IPOs!
Online lender Affirm Holdings Inc. and online video company Roblox Corp. are also on tap to IPO this month, and could each raise tens of billions of dollars.
Now one company that’s garnered a lot of attention since going public a few weeks ago is QuantumScape (QS). It is now publicly traded via a Special Purpose Acquisition Company (SPAC) called Kensington Capital Acquisition.
QuantumScape surged well over 50% on its first trading day after Thanksgiving. That is the good news. The bad news is the company is not forecasted to be profitable until 2027.
QuantumScape is largely backed by Volkswagen (VWAGY), which as of October became the new leader in electric vehicle (EV) sales in Europe thanks to its ID.3 model. So, much of QuantumScape’s success will be tied to VW Group’s EV launches via its Audi, Bentley, Porsche, Seat and VW brands. With 25 EV models due by 2025, VW Group should have a decisive lead over Tesla (TSLA) in the upcoming years.
I should add that Europe is now the leading market for EV sales, due to robust incentives for low-priced EVs from France, Germany and other countries. This epic battle between Tesla and VW Group will likely persist for the next few years, but if VW Group emerges as the decisive winner, then I also expect that QuantumScape will be a major winner if its solid-state batteries become common in VW Group’s EVs.
With that said, because QS doesn’t expect to be profitable for another seven years, it’s not a company I’d recommend right now.
The reality is IPOs may look promising, but they don’t have a proven track record, and plenty are burning cash. This makes them riskier and more volatile.
It’s why I only invest in fundamentally superior growth stocks. These are the types of growing companies that investors will rotate to as Wall Street looks past the hype and focuses more on company fundamentals.
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Note: The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below: