The IPO market was on fire for the last several months of 2020, bringing investors such notable newcomers as Airbnb, DoorDash, and Snowflake, which gained 113%, 86%, and 112%, respectively, on each stock’s first day of trading.
The extreme market volatility that happened early last year with the onset of the pandemic has helped attract legions of new investors. It’s also easier than ever to get started, thanks to the debut of user-friendly investing apps like Robinhood.
Whatever the cause, 2021 is starting out much like last year with strong demand for new issues sending many IPOs soaring. Let’s look at three companies that debuted on the public markets last week, and why investors were so excited to jump onboard.
Affirm: Extending its digital payment heritage
There’s little question that online shopping has changed forever as a result of the pandemic. A greater number of shoppers than ever before are opting to make purchases online. The acceleration of digital commerce, however, has created certain problems in its wake, particularly when it comes to installment payment options. Existing offerings have been rife with fine print, late fees, overdraft charges, and a deferred interest minefield.
Fintech lender Affirm (NASDAQ:AFRM) wants to change all that. While the company might not command the same name recognition as this week’s other IPOs, it certainly boasts an impressive heritage. The company is the creation of Max Levchin, who is the co-founder of digital payments pioneer PayPal.
Affirm is working to democratize high-end e-commerce purchases with a consumer-first focus by offering transparent installment payment options at checkout. The company has financed 6.2 million customers on more than 6,500 merchant sites. An impressive 64% of its business comes from repeat customers, while it boasts a net promoter score of 78 — where anything above 70 is considered “world class.”
The company’s growth accelerated during the first three months of its current fiscal year as revenue of $174.0 million grew 98% year over year. The company reduced its red ink by half with a net loss of $15.3 million, much improved from a loss of $30.8 million in the prior-year quarter.
Given Affirm’s impressive pedigree and recent financial results, it might pay to watch this fintech player.
Petco: Not your grandfather’s pet supply retailer
It’s no secret that Americans love their pets, and the ongoing pandemic has also prompted a wave of pet adoptions from animal shelters. It’s estimated that U.S. consumers spent a record-setting $99 billion last year on pet-related items, including everything from food to medical care.
Petco Health & Wellness Company (NASDAQ:WOOF) is working hard to benefit from that trend. The once stodgy retailer of pet food and supplies now offers a wide-ranging ecosystem of products and services that includes training and grooming, veterinary services, and pet insurance. Petco is also increasing its focus on exclusive merchandise like owned brands and premium foods and supplies to attract higher-end shoppers.
Roughly three years ago, Petco embarked on a campaign to transition from traditional retailer to a fully-integrated, digital-focused provider of pet health and wellness products. As part of that digital transformation, Petco has worked to build out its e-commerce and mobile capabilities while using data analytics to hone its offerings.
That strategy appears to be bearing fruit. During the first 39 weeks of 2020, Petco’s sales growth accelerated with revenue of $3.58 billion, up 9% year over year, while reducing its net loss to $25 million, a big improvement from the $94 million loss in the prior-year period.
On its first day of trading on Jan. 14, the stock opened at $26, easily eclipsing the offering price of $18. Petco shares ended the trading day at $29.40 per share, jumping 63%.
If its recent results are any indication, investors might want to take Petco for a walk.
Poshmark: Making secondhand goods cool again
Vintage, secondhand, and used goods are back in fashion with younger consumers leading the charge. In fact, 57% of consumers between the ages of 13 and 37 say they “never pay full price for clothing,” according to a survey by YPulse.
Poshmark (NASDAQ:POSH) is helping feed the strong and growing demand for secondhand products. The online bazaar offers a variety of used and pre-owned fashion items, including clothing, shoes, and jewelry. The company relies on technology to create a personalized shopping experience, using sophisticated algorithms to match buyers with potential purchases. The secret sauce that sets the digital company apart, however, is the social aspect of its marketplace.
The company has more than 30 million active users that spend 27 minutes per day, on average, at the digital flea market, browsing, shopping, buying, selling, and connecting with other shoppers, resulting in a mind-boggling 20.5 billion social interactions in 2019.
During the first nine months of 2020, Poshmark generated revenue of $192.8 million, up 28% year over year. The bottom line also turned positive, generating net income of $21.8 million, reversing the loss of $34.8 million in 2019.
These factors no doubt contributed to the company’s impressive first-day showing. The stock also debuted on Jan. 14, rocketing 142% higher on Thursday.
Used and vintage items will never be in short supply, and Poshmark is tapping into the ripe market for secondhand goods.
Let the buyer beware
It’s important to note that investing in IPOs is fraught with peril. It’s difficult for the average investor to get these stocks at anything near the offering price. Additionally, new issues are inherently more risky than your average stock due to their typically short track records.
Given the aggressive first-day moves from these stocks, there are already high expectations baked into the current prices, so they’ll have to grow into their valuations. That said, buying an appropriately sized position as part of a diversified portfolio with a sufficiently long investing timeline can make sense for many investors.