How the Coronavirus could impact 5 of 2020’s most hyped IPOs

‘When volatility spikes, the first causality is the IPO market.’

Coronavirus and the IPO market

‘The best thing to derail any IPO market is uncertainty. And if we’ve had anything in the markets in the past few months it’s uncertainty’ said John Jacobs, from Georgetown University’s Centre for Financial Markets & Policy, in a recent Money.com article.

Mr Jacobs continued by pointing out that:

‘Political, economic, interest rates – there’s a ton of uncertainty.’

Mind you, the above quote is not from the last few weeks – where the coronavirus threat has seen global markets torn apart – but from late-2019, when the tech-led bull market seemed unassailable.

Since then, uncertainty has intensified dramatically, with the impact of the coronavirus (COVID-19) seemingly spreading all ways and in every direction. It started with China, where investors were likely hoping for merely short-term supply chain disruptions and small economic declines.

Concerns quickly spread to equity markets however, as investors fretted over the near and long-term fundamental implications of these new found economic uncertainties.

Besides a potential hit to global GDP, likely the most pronounced impact from the Coronavirus has been in the oil markets.

The gist of this impact was straightforward at first: lower demand and lower prices.

For example, the International Energy Agency (IEA) recently wrote that oil ‘demand is now expected to fall by 435 kb/d y-o-y in 1Q20, the first quarterly contraction in more than 10 years.’

Over the weekend things quickly complicated beyond demand-side issues. Talks focused on cutting oil production broke down between Russia and OPEC and oil prices fell sharply in response.

Saudi Arabia – the world’s largest oil exporter responded by threatening to ‘discount its crude and raise production,’ according to the Financial Times; a move which saw unheard of market volatility emerge.

Oil dropped as much as 31% on Monday, and oil stocks collapsed.

That kickstarted a true equities sell-off, as US markets crumbled on Monday. Here, the S&P 500 fell 225 points and the NASDAQ shed over 600 points.

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This all brings us to the central point: With global equity, bond and commodity markets in a state of flux, one is left wondering about the implications for the IPO market.

One relatively hyped IPO that debuted early this year, Casper, a fast-growing mattress company, has thus far been a disaster: its stock is down more than 50% since listing.

Of course, this is not to say that every potential IPO will fare poorly – only that in an environment where investors are looking to offload risk assets – buying the stock of newly listed companies may not be their immediate inclination.

Josef Schuster, Founder of POX said as much, pointing out that ‘typically when volatility spikes, the first causality is the IPO market.’

MarketWatch even ran a recent article titled IPOs are being put on ice as coronavirus fears rock markets.

In that article, it was noted that Carlyle Group and Russian-based petrochemical giant Sibur had delayed their IPOs due to mounting uncertainty.

Top 5 IPOs of 2020: the current outlook

This complex web of information begs the question for the broader IPO market in 2020: will some of the world’s most popular IPO’s go ahead?

Or will they be delayed?

With that in mind, below we take a brief look at some of 2020's most hyped IPOs:

Name

Current Valuation

Date Founded

Industry

Airbnb

$42bn

2008

Lodging

DoorDash

$13bn

2013

Logistics

Snowflake

$12.4bn

2012

‎Data warehousing

Wish

$11.2bn

2010

Online shopping

RobinHood

$7.7bn

2013

Fintech

Two ways to trade IPOs

You can use IG's world-class trading platform to take a position on a company before its Initial Public Offering (IPO) – through Grey Markets.

One of the key reasons that traders and investors may be interested in grey market stocks is ‘because it can be a way of taking advantage of movements in the company’s share price before it has actually listed.’

Besides taking a position on a company before its IPO, you can use CFDs to speculate on the post-IPO share price movements of companies after they have gone public. For example, to speculate on Uber’s share price – short (sell) or long (buy) – follow these simple steps:

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  • Enter ‘Uber Technologies’ or ‘UBER’ in the search bar and select it
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Will they or won't they?

Looking at some of 2020's most hyped IPOs – Airbnb, for example, one of the world’s most richly valued private companies, has recently run into trouble due to the Coronavirus. According to bizjournals:

‘San Francisco-based Airbnb's prospects have dimmed because of the impact that the coronavirus is likely to have on the financials it discloses when it goes public.’

Discount brokerage Robinhood, another hotly anticipated IPO, is facing its own set of problems caused by the Coronavirus.

‘Robinhood's reputation has been damaged by its inability to handle the extreme volumes of trading when the market shot up on Monday and when it dropped on Tuesday,’ also according to bizjournals.

By comparison to Robinhood and Airbnb – DoorDash, an on demand food delivery company has brushed off potential volatility concerns, it would seem. In late February, TechCrunch reported that the $13 billion company had taken the relevant steps to officially file for IPO.

Precise timing around DoorDash’s potential IPO however remains uncertain.

Moreover, and as it seems to be the case with many of these high profile IPOs, Snowflake’s CEO – Frank Slootman – in a recent interview with TechCrunch, said:

‘So, you know, [an IPO is] certainly a possibility in 2020 but it’s also a possibility the year thereafter. I don’t see it happening any later than that.’

Coy. But not wholly surprising.

Finally, news around Wish’s potential IPO has dried up in recent times. Although a March 2019 Forbes article suggested that the e-commerce player may IPO in the next one to two years, the company has remained quiet on a potential public offering since then.

Ultimately, with all this considered and given the current climate in global financial markets, whether some of 2020’s most hyped IPOs will go ahead remains uncertain.

The deciding factor in how this plays out may very much be determined by where the Coronavirus situation heads next: will it worsen and market conditions deteriorate further? Or will it be brought under control and markets rebound?

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