Here’s What’s Working in the IPO Market Right Now: Almost Everything

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Snowflake

this week had a remarkable debut in the public markets, pricing its initial public offering above the expected range and then doubling on its first day of trading. But that’s no fluke—the cloud software company’s offering was just the latest sign of insatiable investor hunger for new issues.

You can see that in the strong performance this year by the

Renaissance IPO ETF,

which logically enough trades under the ticker IPO. Managed by the IPO-focused investment firm Renaissance Capital, the exchange-traded fund has rallied 59% this year.

The fund’s approach is to take market-cap weighted stakes in large new issues within days of the IPO, hold them for two years, and then cycle them out to make room for new arrivals. To get a sense of how the last two years of IPOs have been performing, Barron’s ran a screen looking at the performance of all 42 stocks now in the ETF’s portfolio, sorted by performance. The results are telling, and we’ve listed the best performers below.

Of the 42 stocks, just four have declined from their IPO prices:

Uber

(ticker: UBER),

Lyft

(LYFT),

Slack

(WORK), and

Levi Strauss

(LEVI). More than half of the group have at least doubled from their IPO prices, and as you can see in the table below, more than a dozen have tripled or better.

Zoom Video Communications

(ZM) tops the list, with a gain of more than 1,000%, getting a huge boost to its business from the Covid 19-triggered shift to working and learning from home. In the June quarter, the company posted 355% year-over-year revenue growth. The company trades at close to 50 times current year sales—more expensive than any software company other than Snowflake, which has a valuation about twice that level.

While cloud-based software companies are well represented on the list—CrowdStrike (CRWD),

Anaplan

(PLAN),

Datadog

(DDOG) and Elastic (ESTC) have all had big runs this year—there are a range of other companies high on the list, including health care plays like

Guardant Health

(GH),

Allakos

(ALLK) and

10x Genomics

(TGX), as well as

Livongo Health

(LVGO), which is in the process of merging with

Teledoc

(TDOC). One of the most surprising success stories is

Peloton

(PTON), which fell about 11% on its first day of trading last September. Apparently, investors weren’t anticipating that a pandemic would shut down the country’s gyms, leaving people looking for ways to work out at home.

If you missed this set of IPOs, no worries, more are on the way. CB Insights counts close to 500 venture-backed unicorns—companies with a valuation of at least $1 billion—and many are itching to come public. With the market so accommodating to new issues, expect a steady flow of markets in the weeks and months ahead.

Write to Eric J. Savitz at [email protected]