Snowflake buyers beware: IPOs that doubled have poor track record after that debut

Investing

Snowflake IPO begins trading at the NYSE on Sept. 16th, 2020.

Source: NYSE

So you think Snowflake up over 100% on its first day is a big deal? Nah, there’s been plenty of companies that have had first day pops bigger than that this year. 

They include biotech firm CureVac, up 249% on the first day of trading, software as a service firm BigCommerce up 201%, biotech firm Berkeley Lights up 197%, cloud company nCino up 195%, and insurance fintech firm Lemonade up 139% on its first day of trading.

2020 IPOs:  big first-day pops

  • CureVac             up 249%   (biotech)
  • BigCommerce     up 201% (software)
  • Berkeley Lights    up 197%  (biotech)
  • nCino                    up 195%  (cloud)
  • Lemonade          up 139%  (fintech)

What they all have in common is they are either tech or biotech firms. 

Are these outliers?  Marginally, but the first day pop for IPOs this year is notably higher than usual. The historic first-day pop has been about 14% for an IPO…not this year. The average first day pop in 2020 is 36%, according to IPO tracker Renaissance Capital.

What’s going on? It’s not that stocks are cheap. Matt Kennedy, senior IPO market strategist for Renaissance, notes that multiples for many tech IPOs this year are historically high: “People are willing to pay more for them because there is a higher degree of risk appetite,” Kennedy told me.

If you’re suddenly inspired to start buying high-flying IPOs, Kennedy advises investors to be cautious. The post-first-day returns of high-flyers this year is not encouraging. The 11 other IPOs this year that have popped more than 100% on the first day have averaged a negative 1% return from the first-day close.

Buyer beware.

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