Ultimate 2022 IPO Preview
January 3rd, 2022
With 2021 on the books with record IPO numbers, we saw tremendous opportunities to take substantial profits on quick trades, and many freshly minted stocks that provided great returns on swing trades over a slightly longer hold period. Despite a rough patch to close out the year, IPO trading delivered a life-changing financial windfall for my portfolio, and I am recharged and invigorated for a triumphant return in 2022.
What Worked in 2021:
2021 IPOs were, by comparison, required a bit more selective analysis than what we saw in 2020. Some expected winners such as COIN and CPNG delivered unexpected bombs that proved that not all blockbuster IPOs were poised for multi-day runs, but then again, predictably high profile names like DOCS, RIVN, and RBLX delivered as expected. We saw IPO debut pops across a wide range of industries: from tech (DOCS RBLX MNDY), to international fintech (DLO GLBE), to EVs (SEV RIVN), to food chains (BROS PTLO), and many more…
A few trends that appeared to hold true across all industries:
Low Float: we tended to see IPOs with floats below the 30M share mark perform better than big IPOs. Exceptions proved to be GFS and RIVN, though each of those dipped below their debut price on Day 1 before going on multi-day runs.
Growth Is Not Enough: We saw that pure growth numbers were not enough to carry an IPO debut beyond an initial debut premium. RELY, CPNG, and others debuted at excessive premiums with no follow-through once they started trading. The market’s valuation of growth stocks has clearly diminished due to inflation and interest rate fears, and we can expect this to have an obvious impact on IPO valuations. One one hand, this may reduce the debut premium and offer a more attractive opportunity to buy into newly minted stocks early at a better price: ideal for longer term holds. On the other hand, we may not be able to count on excessive exuberance for high flying tech stocks that have not yet proven they can reliably achieve profitability.
One indicator that seems to have held true, is having baseline financials (net income, cash flow, and operating profit) that are at least moving towards positive: though having at least one of these indicators in the black has had a strong correlation with a strong IPO debut performance.
Brand Name Recognition and the Day 2 Media Cycle: Highly visible brand names and stocks that garnered strong media coverage tended to trade upward on the Day 2 media cycle: BROS, DOCS, PTLO, RBLX, BMBL, etc… even those that faded a bit on on Day 1 made substantial comebacks on Day 2 media hype: RIVN and GFS in particular. One of the reasons I love playing highly recognized brands is that if Day 1 doesn’t play out as expected, you have a very good chance of getting bailed out on the Day 2 media boost.
The Trend is Your Friend (sometimes): When a company IPOs at the right moment, the intensity of the hype and promotion around the stock can provide an ideal environment for a debut pop… SEV followed a red-hot RIVN debut, and ran nearly 100% from it’s debut price. PTLO followed BROS and gave a huge win opportunities. DOCS debuted right as DELTA was peaking… IPOs in trending markets can produce the perfect storm for a debut run, but there’s one hitch:
Beware of the Over-Heated IPO Setup: Perhaps the most dangerous IPO debut setup occurs when the hype becomes over-heated, and the debut premium reaches an absurd level that scares off retail traders from buying in after the debut. COIN debuted amidst a frenzy of crypto mania, as Bitcoin set new all-time-highs and the media coverage was relentless. While it did provide a nice opening run, failure to exit at the top resulted in bag-holding positions that have yet to recover. SG similarly became over-hyped on comparisons to BROS and PLTO, only to debut at such a hefty premium that it left essentially no room to sustain further upward movement, and proved to be fantastically over-valued at a time when the market was correcting. It seems like popular-but-less-known companies experience a very positive reaction to the hype around their IPO campaigns, whereas wildly popular companies have already reached peak-hype going into their IPO, leaving less room for a post-debut run.
Market Conditions are Relevant: Cold market conditions tended to deliver reduced debut premiums, and less demand to drive up the price following the debut. But we saw that under such conditions, longer term holds in strong companies delivered substantial gains: S, GFS, and GLBE were all prime examples. In hot markets, initial runs were more pronounced, but risked fading quickly: a great example was BMBL.
What will Work in 2022?
I expect that we will still see tremendous opportunities to take quick profits on 2022 IPOs, but we will need to be more selective and perhaps more patient in realizing gains. For one, I believe there is less retail capital that is going to throw itself at every IPO, and low-float IPOs may be getting played out. I’m going to be perhaps a bit more conservative in my debut trades, end apply a criteria for large positions that I will focus on companies whose stock I wouldn’t mind holding for long term if necessary. Another strong trend has been for companies to raise more private venture capital prior to going public, so for many of the companies I will be looking to trade on their IPO debut, I expect to see more mature balance sheets and proven business models in the stronger names.
I also expect that many retail traders who tried their hands, with great success in 2020 into 2021, will recognize the challenges to trading in a less than red-hot market as we move into 2022, and gradually fade out of actively trading. I sense that I was not the only voice on social media to express a bit of burn out running into the close of the year, and as the euphoria of winning streaks turns in contrast to the harsh reality of sustaining even a few hard losses spreads throughout the market, many casual traders will likely move their funds into more stable names, if not retire to cash entirely. Having said that, the market does move in waves, and now that retail traders have a taste for profits, there will always be an appetite for the newest, hottest stock in the market: and this is what makes me uniquely optimistic about IPO trading.
Here’s what I’m focusing on in 2022 IPOs:
Strong Baseline Financials: I believe this will be a major focus for IPOs going forward. We have plenty of SPACs available for more speculative companies, so IPOs need to demonstrate a move towards profitability if not outright positive numbers in cash flow, operating margin, and net income.
Low Float: It’s as simple as demand vs supply. If supply is low, it doesn’t take much demand to push prices upwards. For me, the line is roughly at 35M shares: above that, and you’re gonna need a very highly anticipated debut with a ton of media attention and strong financials. Below that, and hype alone can carry the IPO pretty far, at least for an initial run.
Data, Metaverse, Fintech, EVs, Semis: I expect these to be strong buzzwords for 2022, same as 2021, and will be on the lookout for companies that have proven growth in these sectors.
Defensible Market: An under-rated criterion where I have witnessed a separation between strong long-term performers and crash-and-burn debuts, lies in the distinction between whether a company has a unique offering or whether they are competing with a large number of also-rans in their space. COIN and RELY had mixed performances since their debuts, and face stiff competition for market share since their services are somewhat easily re-created: which results in pressure on margins. DOCS, GLBE, DLO, and S all have more uniquely strong products that lock in their customers and allow them to charge premiums for their services.
Market Conditions: I expect that the first strong IPOs of 2022 will offer great entry points for longer term holds, as the market emerges out of a bit of a winter slump. With uncertainty and reduced enthusiasm, I expect diminished debut premiums and some great buying opportunities for potential longer holds in strong companies. If the market heats up at some point, I become more cautious over over-heated IPO debuts and will lock in wins on shorter time horizons.
2022 IPO Lineup
Ok, you’ve read this far, let’s jump into the hottest companies slated to debut their IPOs in 2022. While it is virtually inevitable that some names on this list defer or fail to IPO this year, these are the names that will be at the top of my watch list. I like to bear in mind that if you can string together 7 consecutive wins of 10-15%, rolling your capital from one win into the next, you will effectively double your money, and then some.
As these are currently private companies, I do not have full access to their financials or other performance metrics, so we will have a better picture of their debut prospects when and if they do go through with IPOs. Factors such as market conditions, float, and pricing will of course play a role in determining whether to play these on their debut.
Stripe: Stripe is a leading payment gateway integration platform for enabling ecommerce transactions in websites and mobile apps. Clients range from huge eCommerce giants like Amazon and Google, to small time merchants like, erhm… even I use Stripe to accept online payments. They are substantially funded, and recent rounds of fundraising value the company at $95B, so their CEO has publicly stated that they are in no rush to go public. However, it would stand to reason that at some point, all the VCs and institutional money that has backed them over the years will eventually encourage them to IPO. Whenever this happens, I expect demand to be frothy and if they do go public in 2022, I expect it to the be blockbuster IPO event of the year. This would be one that I would go into very enthusiastically, and expect it to run for multiple days.
Plaid: Provides a software platform that allows apps to connect to a user’s bank account, for example, it allows RobinHood users to connect their bank accounts to the popular trading app to conveniently transfer funds into and out of their trading account to their bank account. Plaid takes a commission from the vendor for each transfer, and is a leader in the “open banking” market, which has a TAM estimated at $416B. With 2020 revenue estimated at $170M on +60% YoT revenue growth, this company is poised for substantial future growth. An offer from Visa to buy the company outright at a $5.3B valuation was blocked by the US Department of Justice in January 2020, and a recent fundraising round in April 2021 reaped $425M at a valuation over $13B. This is a strong candidate for high institutional interest, and is poised for a strong IPO debut should they go public this year.
Epic Games: A wildly popular game developer known for its Fortnite and Gears of War games, it also shares a virtual duopoly in the gaming engine space with Unity (U) with its Unreal Engine providing a vital development tool used by many production level gaming companies, and is promoted as a viable contender in the ‘metaverse creator’ space. Recent funding placed the valuation at $28.7B when they raised roughly $1B in April 2021. Given the metaverse trend, popularity of its leading gaming titles, comps to Unity, and strong brand name recognition amongst retail traders, I feel this would be a solid IPO for a debut buy-in and flip.
Databricks: An all-in-one platform combining cloud data, Artificial Intelligence, and unstructured data analysis into what they refer to as a “Data Lakehouse”… think of it as raw data converted into structured data warehouses. If that’s not enough attractive buzzwords to get your investment juices flowing, consider that they are used by over 40% of Fortune 500 companies, and claim over 5,000 customers in over 12 countries, with revenue projected to top $1B in 2022on 75% YoY revenue growth. Backed by BlackRock and other big name investment banks, they are getting comps to SNOW and are likely to be a name that is in high demand when they IPO. This one lines up nicely across most debut criteria, but we’ll still need to see how they structure the IPO in terms of float and price, along with market conditions: but I feel this one is a strong setup for a debut trade.
Automation Anywhere: This cloud-based robotic process automation (RPA) platform would have been a lock in 2021 for a strong IPO debut, along the lines of direct competitor UIPath (PATH). They claim to have over 2.8B bots operating in conjunction with over 1500 partners and customers in over 90 countries, with an out-dated valuation of $6.8B established on a 2019 round of funding, we don’t have enough publicly available financial data to really draw apples-to-apples comps to their competition. The TAM for RPA is projected to $50B by 2022, and this is sure to be on Cathie Wood’s radar, but I have to believe that the market will be somewhat cautious given the pullback in share price of PATH following its post-IPO run up.
Reddit: So.. where would retail trading in 2020-2021 be without Reddit: home to the incredibly influential r/WallStreetBets? The social media platform whose users single-handedly brought us the GME and AMC short squeeze play that nearly broke both the stock market and Internet is lined up to go public: and whether they come to market through a SPAC or traditional IPO, it’s pretty hard to ignore the possibility that this stock could catch fire in explosive ways. On top of its 50M daily users, and a recent fundraising round that values the company at roughly $10B, Reddit has claimed revenue exceeding $100M in Q2 2021: up +200% YoY. But numbers aside, we have seen meme-stocks reach a point of hype and hysteria that rivals only crypto-level valuations that are entirely detached from any sense of financial justification. If the company that brought such insane valuations to the likes of GME and AMC goes public, it seems highly likely that the armies that pumped those stocks to insane heights could collectively to agree to jump aboard Reddit’s IPO and send it on a crazy ride. That’s not a ride I’d want to miss out on.
Discord: And where do Reddit groups gravitate for pure chat-room engagement? Well… Discord. A communication platform initially developed for gaming communities that has quickly expanded to host trading groups along with chat rooms for other online communities. Their monthly active users doubled from 2019 to 2020 to reach over 140M based in 2021, and revenue has increased +190% from 2019 to 2020 to $130M. They turned down an offer from Microsoft (MSFT) to buy the company for $10B in April 2021, and the most recent round of fundraising values the company at around $7B. I’m not sure it would have quite the hype built around it as a Reddit IPO, but given that it supports a core base of avid day traders, it stands to reason this company would garner a lot of attention in from retail buyers on it’s debut.
Airtable: A leader in cloud-based low-code collaboration software, AirTable allows customers to create customized workflows with little to no technical expertise. Customers include Netflix, Expedia, and Shopify with a recent round of fundraising closed in December 2021 valuing the company at $11B, this one is likely to be in a position to fund its own operations for a while before it needs to IPO. When it does, it’s likely to get a solid reception with comps to MNDY and ASNA, both of which ultimately have performed well since their IPOs despite rocky initial trading (ASAN was a direct listing).
Thoughtspot: This is a data visualization company that allows companies to leverage AI and data analytics to build customized dashboards to help business monitoring and decision making. The company includes SNOW amongst its investors, and has over 100 SaaS enterprise clients paying roughly $100k per year including T-Mobile and Verizon, and has publicly disclosed that 2021 annual recurring revenue from cloud products is up +250% YoY. The twist for this company is that they have recently begun transitioning from an on-site consultancy that would take months to implement customer solutions to a SaaS platform which is able to onboard new clients in less than a day (which sounds a lot like PLTR’s transitional period, which has yet to be fully digested by the market). The CEO has stated in September 2021 that he wants to get a few more quarters of stable SaaS growth under their belt before they IPO, in order to bolster a higher valuation: pointing out the consultancies only tend to get valuations assigned based on a 3-5x revenue multiple, while SaaS platforms can command closer to 20-30x revenue multiples (or even higher in extreme cases). If they can pull off comps to PLTR, with a tighter share structure, this one could be a solid debut worth playing.
Chime: No-Fee banking fintech owned by Bancorp Bank that earns money on merchant fees from credit card transactions by its members. They are also moving into micro-loan services (currently offering some limited $200 loans to customers). Growth estimates have been projected at +200% revenue in 2020 and they claim to have achieved EBITA profitability in 2021. They recently raised $1.1B in August 2021 for a $25B valuation, and are rumored to be targeting a $35-40B valuation in their IPO. If the Nubank IPO serves as any indication, I don’t actually expect this debut to be all that volatile, but perhaps it will depend on the size and float of their IPO. For me, an ultra-low float, heavy social attention, or highly attractive pricing, might bring me to play this one on the debut, but banks have typically not offered all that much of an immediate upside on their debut. Then again, most banks aren’t growing at the rate at which Chime is expanding their customer base.
Mobileye: Intel is spinning off its autonomous driving unit, which offers a wide range of products including Software-on-a-Chip, a robo-taxi division, safety systems, and other auto-related products. Mobileye was publicly traded until Intel bought it for $15.3B in 2017, and the re-IPO is projected to value the company at roughly $50B. Mobileye has shipped over 100M units of it’s EyeQ SOAC products in 2021, and is utilized by over 30 global automakers, with YoY revenue projected at +40% in 2021. It’s a very strong name that will get a lot of hype an attention, but my concern is that spin-off ‘IPOs’ tend to sell off on their debut, as shareholders – INTC shareholders will get an allocation – cash in their chips for quick profits. So this one will likely be a ‘wait and see what happens’ debut for me. After an initial dip, the price may be ripe for an overnight swing trade.
Instacart: A grocery deliver platform that thrived during the pandemic, and is available to over 85% of American families (80% of Canadian); this company tripled revenue in 2020 to $1.5B. They work with over 600 retailers across 55,500 stores in over 5,500 cities, and recently raised $200M for a $39B valuation. They were rumored to go public via a direct listing in 2021, but have yet to file even a preliminary S-1, so we’ll have to wait to see what approach they take. The most direct comps will be to DASH, but also face heavy competition from UBER, AMZN, and others. Investors will scrutinize their baseline financials against their sure-to-be-ridiculous growth metrics, and compare these to DASH’s valuation: which has fluctuated dramatically from a high of over $80B in November 2021 to a hair over $45B less than 2 months later. In my opinion, the food delivery business is a saturated market where competition is likely to force a race to the bottom where margins get squeezed until 1 or two clear winners are crowned through a process of forced consolidation. In such an environment, it stands to reason that Instacart would become a takeover target to be folded into the operations of an AMZN, UBER, or perhaps WMT. Will have to see how the valuation stands up to DASH when and if they go public.
Klarna: A buy-now-pay-later service that allows customer split the cost of items sold by its 250,000 retail partners into 4 interest-free payments. Klarna claims 20M US customers with 100% customer growth from 2019 to 2020, and recent fundraising values the company at roughly $45B. The incurred a pre-tax loss of $344M in the first 9 months of 2021, and will inevitably get comps to AFRM, despite a business model which I find to be a little more gimmicky. The same way Instacart will get comped to DASH, Klarna’s comps to AFRM will provide a sort of barometer against which to compare their valuation. These second-run IPOs tend to stand a slight disadvantage to their predecessors as I see it, because retail traders have a clearer sense of how the market will value such companies and valuations are therefore less likely to run on rampant exuberance and speculation (especially in tighter market conditions). Given AFRM’s recent pull-back, I’m not particularly excited about this one at the moment, though a resurgence in AFRM’s share price would undoubtedly serve to boost Klarna’s debut prospects.
Impossible Foods: The tail end of list continues to deliver companies with direct comps to competitors that were red-hot a year ago that whom have unfortunately experienced sharp corrections in recent months, and Impossible Foods continues this tradition with its direct comps to BYND. BYND went on an insane tear out of the gates when it debuted its IPO in May 2019, running from an opening price of $46 to a high just shy of $240 in less than 2 months, and after pulling back down to as low as $50 during the March 2020 pandemic crash, it resiliently climbed back up to the $220 mark by October 2020… and the market was salivating over the prospect of an Impossible Foods IPO (or potential SPAC merger). Alas, the flame seems to have died down on BYND for the time being, and this will not be welcome news for Impossible Foods, despite having what many consider to be a superior product to their competitor. Recent funding puts the valuation at $7B, and they are supposedly seeking a $10B valuation in their IPO (vs BYND’s current market cap of $4.1B – down from nearly $14B just a year ago). We’ll need to see numbers, and pricing to determine whether this one warrants a debut trade or not, but other recent animal-product-alternatives have also produced dismal IPOs, most notably the OTLY IPO which actually rallied for about a month following it’s IPO from a debut at $22.12 to a high of $29 less than a month later, but has since trailed off to a current price of just $8.37 at the time of this writing. Perhaps a good time to take a starter on OTLY, but not a great portent for Impossible Foods.
Panera: A popular chain restaurant known for it’s bread, but also owns Caribou Coffee and Einstein Brothers Bagels. Actually, chain restaurant IPOs have done rather well recently, with BROS and PTLO both sustaining incredible post-debut runs. This one, however, has a few twists that make me a little unsure that their IPO will follow suit. The first is that Panera traded publicly as recently as 2017 before going public at a price tag of $7.5B. But perhaps more troubling to me is the fact that they have received a SPAC investment from HUGS under the terms that HUGS shareholders will receive an allocation of Panera IPO shares at a ratio of $10 divided by the IPO price. This is the kind of ‘weird setup’ that generally seems to confuse investors: and I don’t find confusion to be a key ingredient for baking up ‘high conviction’. I’m not so sure that institutional investors are going to line up to take substantial positions alongside SPAC owners in this IPO, and would expect SPAC shareholders to be ready to dump their shares if Panera debuts at any kind of a premium. I guess there could be some lockup period that might protect the share price on the short term, but at that point we’re kind of fishing for reasons to own this on the IPO, and without high conviction, I don’t see any reason to force myself to play this one.
iFit: The leading provider of large fitness equipment in the US, and owner of the NordicTrack, Proform, and Freemotion fitness machines, with a subscriber based digital media content offering claiming 1.5M paying subscribers and 6.1M users, the inevitable comps will be to PTON. A year ago, this may have been a home run IPO as PTON reached all-time-highs amidst pandemic fueled demand at a top of $171/share at a valuation over $55B… but with PTON down to a relatively measly $35/share and a slimmed down valuation reduced to a pithy $11.4B, you have to think that IFIT executives feel that, like PTON shareholders who failed to sell out at pandemic highs, they missed their chance to cash in on what would have likely been a blockbuster IPO had they prepared their pitch deck while the markets were raging. iFit had tried to scramble together an IPO in October 2021, but scuttled the efforts citing poor market conditions (PTON was at least up in the $90s at that point), but they may have to settle for what they can get in current market conditions. Their numbers will likely ring hollow on the ears of investors: claiming revenue is up 100% in the 12 months ending May 31, 2021 compared to prior year just sounds hollow when everyone who bought PTON in the past year is sitting on 50-75% losses.
Lime: Can we throw E-Scooters and E-Bikes into the EV hype wagon? If so, this IPO will be a blockbuster, but since we all know that’s a stretch, I can’t really get too excited about this one. Consider that the company recently got bailed out by a $523M convertible debut issuance in November 2021, and that their valuation crashed by over 80% in May 2020, even the impressive numbers of 200,000+ vehicles in over 80 cities sounds less like an asset than a liability. UBER even pawned its ‘Jump’ division onto Lime as part of their $170M lifeline investment in 2020, and apparently has an option to outright buy Lime at an undisclosed price between 2022 and 2024…which sounds to me like a scenario where if they fail, Uber loses its investment (a tax write-off), and if Lime somehow miraculously succeeds, UBER gets to buy them at a steal (I’m assuming UBER didn’t make a deal whereby they’d have to pay a premium for Lime if they turned their business around). To me this business dogged by competition, liability, regulatory headwinds, and a customer base who would likely buy an E-Bike or E-Scooter if their usage rate ever reached the point where their consumption level would otherwise support Lime’s business model. (I do like and use these services, but there are so many in every city in the world, and I still can’t believe they think its safe to just let the random public ride these things without helmets, and with complete disregard for traffic rules).
International IPOs: I’m not gonna go into these at depth right now, as I’m not sure if or when these will IPO in America, but worth keeping an eye on nonetheless:
Flipkart: An Indian food delivery service backed by WMT
ByteDance: Owner of TikTok – a US IPO would likely be blocked by Chinese regulators, but would surely be a blockbuster level debut
VinFast: Vietnamese auto company with a slate of EV SUVs lined up for US distribution.
Stealth IPOs: Anyone who’s been following me for the past year, knows that ‘Stealth IPOs’ have provided some of the most lucrative IPO plays, with companies like WNW, UTME, TIRX, EJH, CPOP, and SOPA all going on insane multi-day runs that offered 1,000%+ wins in some cases. For more on this topic, you can read my original thesis for what is driving these debuts here.
Unfortunately, with the suspension of all Chinese based IPOs in October 2021, the Stealth IPO all but vanished from sight, though sneaky workarounds appeared under the cloak of direct offerings and uplistings a la FCUV, PETZ, and PLIN, as well as one well executed IPO that slipped by in SOPA. Thankfully, the PRC has clarified their stance on regulations regarding US listings, so I expect we’ll see some Stealthy IPOs emerge in the next month or so, with my eyes out for debuts and uplistings including MULG, GSUN, and HLP.
However… given that these are, by nature, ultra-low-float debuts that can apparently be ruined in the pre-debut pricing if large volumes of orders flood the share imbalance process, I am wondering whether bringing attention to these plays has entirely ruined the opportunity for everyone ( including myself). Given the wreckage I wrought upon myself in bidding up the SIDU IPO to unsustainable levels in the pre-debut imbalance (and subsequent carnage I put my portfolio through as a result), I’m pondering what measures would best be taken in sharing my research without squandering the opportunities… perhaps I will need to dig deeper in my research in order to determine a target price at which I would recommend an entry limit order as a guide for those who want to play these trades without collectively bidding up the price to a point where the entire trade setup is blown up before it even opens.
Final Thought: I want to say thank you to everyone who has supported the IPO Warriors community over the past year or so, and feel blessed and honored to be a part of something that has grown from a single Reddit Post to a community that has learned, educated, and no doubt provided emotional support beyond the scope of just stock trading. I appreciate the opportunity to share my research and ideas with all of you, and likewise appreciate all that I have learned from other members of the IPOW community. I look forward to bringing more to the table in 2022, including video breakdowns of featured IPOs, live IPO debut trading, and I intend to explore the possibilities of premium content including IPO trading courses and more as I dive deeper into the world of IPO trading.
NOTE: This is NOT financial advice, and I am not a financial advisor: this content is meant only as information. Trading stocks, especially stocks like the ones mentioned in this newsletter, is extremely risky. I may have positions in equities mentioned in this newsletter and may liquidate my position at any time. Trade your own trade, do your own due diligence, and good luck in the markets.