7 Best IPOs Of 2020

Nearly 500 private corporations started selling shares to the public in 2020. These initial public offering (IPO) give investors opportunities to buy stock in companies that are expected to have successful financial records in the coming years.

Some companies haven’t earned profits yet. Famously, Uber (UBER) went years without generating profits, even after going public.

An early investment in a profitable company that is on the cusp of huge growth could make it possible to see extraordinary growth as the company grows and starts earning money. Facebook (FB) was an example of such a company when it went public.

Some IPOs thrive better than others. An early investment often means that you take a bigger risk with your money. On the other hand, it could mean that you earn a lot of money by taking that risk.

Imagine the wealth you would have if you purchased the first public shares of Apple (AAPL). The first public shares were just $22 each in 1980 (and since then there have been lots of Apple stock splits).

The few who took advantage of the IPO generated tremendous wealth by taking a risk on a company that would redefine modern computing and entertainment.

Why Private Companies Go Public With IPOs

Why do private companies use IPOs at all? As private organizations, management has greater control over leadership and how they allocate resources. It turns out that there are plenty of pros and cons for companies that commit to IPOs.

Benefits Of IPOs for Private Companies

Some of the advantages of IPOs for private companies include:

• The opportunity to generate capital quickly by attracting new investors.
• Increased brand awareness from media outlets paying attention to the IPO.
• Better opportunities to attract talented employees by offering them compensation packages that include public stock options.

Disadvantages Of IPOs For Private Companies

Given the option to raise money that they can devote to research, expansion, and product development, why don’t all companies have IPOs? There are some disadvantages, such as:

• Increased regulations from the SEC and associated administration costs.
• Converting from a private to a public company takes a lot of time and money.
• Losing control to shareholders.
• Increased scrutiny from shareholders that encourage some companies to make poor decisions that value short-term profits over long-term success.

Should Investors Buy IPO Stocks?

Considering that hundreds of companies have IPOs each year, you might wonder whether it makes sense for you to invest.

Knowing the potential benefits and downsides should help you determine whether IPO investing fits into your investment strategy. 

Potential Benefits of Investing in IPOs

Some of the potential benefits of investing in an IPO include:

• Getting potentially “low-cost” shares in companies that could grow quickly, offering you significant financial rewards in the process.
• Earning dividends from successful companies (depending on whether the company offers dividend payments).
• Adding diversity to your investment portfolio.

Potential Downsides of Investing in IPOs

IPOs can look like terrific opportunities when you focus on companies that thrive after going public. You do face some potential downsides when you choose to invest in an IPO, though. Some of the risks include:

• IPO stock prices can bounce quickly, which makes them seem like strong options until people lose interest, and prices fall below the initial offering price.
• Some IPOs generate a lot of excitement in the media. Unfortunately, the excitement can contribute to overvalued prices that tumble quickly.
• Limited information about IPOs makes it difficult to choose stocks that will thrive over the years.

What to Consider Before Buying IPO Stocks

Every investment comes with risk, so you shouldn’t necessarily avoid IPOs. You should, however, take some precautions before committing your money to them. You can’t guarantee success, but you can increase the odds of earning money from your investment.

Some of the most important things to consider before buying IPO stocks include:

• How long the company has been in business. The longer a company has been in business, the more information you can likely find about its revenue sources, products, growth, and reputation. A company that goes publicly quickly makes it hard for you to learn about how it operates and its financials.
• Whether a bubble has made the IPO overvalued. Ideally, IPO valuations would only originate from “rational” financials, such as revenues and profits. In reality, IPOs can occur during industry bubbles, which encourages evaluators to overestimate their real values. Even if bankers set the price correctly, early investors can push IPO prices into the stratosphere with little, if any, justification. During a bubble, investors may feel euphoric about opportunities. For example, they might get so caught up in the excitement of an emerging technology that they throw caution to the wind, giving in to the unrealistic belief that the stock will outperform expectations.
• How IPOs plan to spend their new investments. Before going public, companies must file a prospectus with the SEC. You can’t always trust everything in a prospectus, but you should still read it to learn about the company’s previous finances and, perhaps even more importantly, how it plans to spend the money it raises from its IPO. If the company wants to research new products or expand into new markets, you should consider that a good sign. Take caution if a company plans to repay loans or give the founders generous buyouts. Investors rarely get much out of those deals.

Depending on your age and how much wealth you have, you might find that you accept more or less risk than other investors. More often than not, the rule of thumb is to keep 10% or less of your portfolio in IPO stocks.

The Best IPOs Of 2020

Of the hundreds of companies that went public in 2020, a handful stand out as some of the greatest successes worthy of your attention.

ZoomInfo IPO Skyrocketed 153%

IPO date: June 3

IPO price: $21

Price at the end of 2020: $48

Highest price of 2020: $53.19

ZoomInfo (not to be confused with the videoconferencing application, Zoom) has a massive database that contains information clients can use to target potential customers and clients.

ZoomInfo started in 2000 as Eliyon Technologies. It changed its name to ZoomInfo in 2007 after a number of private investments and acquisitions. Some of the companies acquired by ZoomInfo since 2007 include NeverBounce and RainKing.

In 2019, DiscoverOrg acquired ZoomInfo and started preparing for its IPO. The IPO included 44.5 million shares sold under the ZI ticket symbol.

It’s unclear why DiscoverOrg chose to move its newly acquired company to an IPO so quickly. Regardless, the decision positioned the company as a major player in online sales.

As the 2020 pandemic kept more people at home, companies turned to data analytics to focus their lead generation and conversion attempts. ZI became a valuable tool that made it easier to identify consumers that would convert.

Despite the benefits of using ZoomInfo, the stock price climbed and frequently fell throughout the year. Within two months, the stock price surged from its IPO price of $21 to $53.19.

By mid-September, though, the price dipped to barely more than $31. ZoomInfo spiked a couple more times during 2020 and ended the year with a $48 value.

Agora IPO Burst Share Price Higher By 200%

IPO date: June 25

IPO price: $20

Price at the end of 2020: $39.45

Highest price of 2020: $60

The surge in remote work made 2020 a stellar year for companies that develop communications software.

With millions of Americans sheltering in place, companies needed reliable, secure ways to host meetings without forcing people to have personal contact with each other.

Agora offers several communications products designed to meet the needs of education, retail, telehealth, gaming, and other industries. The company’s video call became an essential tool for businesses in 2020.

Many developers also used Agora’s technology to add live interactive audio and video streaming to their apps. Powered by Agora’s live streaming feature, apps could satisfy consumer needs without forcing companies to spend a lot of money on customer support professionals.

Agora stock reached its peak in early July when its value exceeded $56 per share. Although the value has fallen considerably since then, the earliest investors could still have managed to double their money by the end of the year.

Lemonade IPO Sizzles Up By 363%

IPO date: July 2

IPO price: $29

Price at the end of 2020: $122.50

Highest price of 2020: $134.45

Lemonade uses innovative technology to process insurance claims quickly. The company relies heavily on chatbots that can perform services that customers typically request, such as filing claims, requesting quotes, and tracking payments.

Lemonade’s advanced chatbot technology makes it possible for the company to approve claims and issue payments within a few seconds without getting any employees involved.

Since its founding in 2015, Lemonade has stood out from other insurance providers by giving customers exceptional services and letting policyholders choose to donate unclaimed premiums to nonprofits.

The company’s policy states that it keeps 25% of premium payments. The other 75% gets set aside to pay for claims. When policyholders don’t need to file claims, the money goes to a nonprofit of each customer’s choice.

Lemonade’s IPO became an immediate success. On July 1, the company planned to sell its stock for $29 per share. As soon as the NYSE opened on July 2, the price shot to $69.41. At the end of 2020, Lemonade shares were worth $122.50. Even investors who purchased the stock for $69.41 nearly doubled their money.

nCino IPO Powers Share Price Higher By 169%

IPO date: July 13

IPO price: $31

Price at the end of 2020: $73

Highest price of 2020: $83.65

NCino, a company that has been developing banking software since 2012, asked $31 per share during its IPO. The price quickly climbed to $77.20.

The company’s stock rode a roller-coaster of price levels from July to the end of October, though. The turbulent ups and downs happened at least a dozen times before the price started to stabilize in November.

In this case, investors who waited a few days to purchase shares often got the best deals. Anyone lucky enough to buy the stock at its IPO price had the potential to earn as much as 169% from trough to peak.

NCino didn’t start the IPO application process until it accumulated several accolades showing that it could excel in the banking software industry. In 2019:

• Forbes counted nCino as one of its list of top 100 cloud-computing companies.
• American Banker magazine named nCino the Best Fintech to Work For.
• A report from Aite Group mentioned nCino as a top vendor.

Products from nCino attracted banking institutions because it could lower costs, improve conversions, and shorten loan-closing times. According to nCino, its average client benefits from:

• 127% increase in account opening completion rates.
• 22% increase in efficiency.
• 40% decrease in loan closing time.
• 92% reduction in service costs.

As a high-performing company with years of success, it makes sense that nCino stands out as one of 2020’s best IPOs.

BigCommerce IPO Triggers Share Price Rally Of 329%

IPO date: August 4

IPO price: $24

Price at the end of 2020: $65

Highest price of 2020: $103

BigCommerce offered its stock at $24 per share. That offer didn’t last long, though. By the end of August 5, the price had exceeded $72.

BigCommerce experienced a lot of ups and downs during the fall of 2020. The numerous peaks and valleys gave investors plenty of chances to earn money from BigCommerce. Some people took advantage of the rapid changes to buy low and sell high. Smart investors held on to their shares, though. By November, BigCommerce shares stabilized, with prices averaging about $70.

It’s not surprising that BigCommerce’s IPO did so well. The Austin-based company has been working in the ecommerce industry since 2009.

BigCommerce offers several of the services that online stores need to increase sales. Some of the most important features available on the platform include:

• Customer segmentation.
• Search engine optimization.
• Mobile optimization.
• Checkout customization.
• A visual editor for building pages.
• Integrations with other popular ecommerce tools.

Anyone paying attention to BigCommerce’s history should know that the company takes its finances seriously. The company relied on bootstrapping to develop its products and start attracting clients.

In other words, the owners used their own savings to fund the company. They didn’t rely on any loans, which means they didn’t have to repay debts.

BigCommerce slowly built itself into an industry leader, showing that it had the motivation, grit, and smart ideas needed to overcome the odds.

Snowflake IPO On Fire To The Tune Of 225%

IPO date: September 16

IPO price: $120

Price at the end of 2020: $290

Highest price of 2020: $390

When Snowflake offered its shares at $120, the SNOW share price immediately jumped to about $254.

Since the IPO occurred in mid-September, the stock didn’t have much time to move before the year’s end. Over a couple of months, though, the price managed to peak at $390 on December 8.

It couldn’t stay above $300 for long, though. The price had fallen to $290 by the end of the year. A $100 decline might sound terrible to some investors, but the company’s stock has done spectacularly well.

Even the end-of-year price gives early investors a return north of 200%.

Snowflake’s successful IPO likely comes from a few factors:

• The company has shown steady growth and attracted private investments since its founding in 2012.
• Snowflake’s platform offers diverse data-storage options, including data lakes and data warehouses.
• Economic impact reports show that Snowflake has helped its users add value to data and earn more money.
• All of today’s major corporations rely on data and data analytics to target consumers, explore new products, give customers better services, and streamline business processes.

Despite Snowflake’s relatively high stock price, investors could buy IPO shares without much worry. The company has nearly a decade of success and a growing reputation as one of the most reliable data platforms.

Airbnb IPO A Surprising Success

IPO date: December 10

IPO price: $139.25

Price at the end of 2020: $147

Highest price of 2020: $157.30

Airbnb’s reputation as a travel services disrupter has grown since 2009, when the fledgling company received seed money. The last decade has made Airbnb a household name as it spread internationally, acquired other businesses, and gave users an easy way to find affordable vacation housing.

During 2020, about 14,000 new hosts joined the platform each month, adding to the 2.9 million worldwide hosts.

Like most businesses that experienced growth in 2020, Airbnb surprisingly received some help from the global pandemic. While many states and countries restricted travel, plenty of people chose to travel within their states and regions. As long as they did not cross certain borders, their governments didn’t enforce quarantine periods.

Hotels looked like extremely unsafe environment during 2020. Only federal assistance made it possible for the hotel industry to stay alive. Some were forced to close their doors and layoff employees. People willing to travel short distances weren’t necessarily willing to take the risk of staying in a building with hundreds or thousands of other travelers.

Airbnb looked like an appealing alternative that could offer limited exposure to other people. Many hosts on Airbnb promoted their COVID-19 policies, such as disinfecting properties between every visit.

Airbnb’s history and popularity made it possible for it to sell its initial shares for $139.25 each. The company didn’t go public until December, rather late compared to most well-known businesses. Over the final month of the year, the price peaked at $157.30 a week before Christmas. It ended the year at $147 per share.

Although Airbnb hasn’t made its early investors much money yet, it’s positioned to grow rapidly as more people get the COVID-19 vaccine and look forward to traveling in 2021.

Best IPOs Of 2020: The Bottom Line

It takes a lot of research and experience to choose an IPO that will perform well. Even professional investors can make incorrect decisions that lead to losses.

Overall, though, many risk-seeking investors find that it makes sense to invest a portion of their investing capital in IPOs. As long as your portfolio can accept the downside and price volatility, you can benefit from buying a newly public company’s stocks as early as possible.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.