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What is an IPO? This is how you benefit from an initial public offering
In this article we will explain what an Initial Public Offering (IPO) is, which were the largest IPOs in history and how best to invest in IPO stocks.
We also want to introduce you to possible future IPOs of large companies. Such IPOs hold great potential for potential profits. As with all other stocks, of course, some companies will flourish after their IPO, others will not.
It is an interesting time for new companies as we have been in a bull market for several years - with a brief interruption during the Corona crisis. At the beginning of 2021 things looked very good for investors, the American stock indices and also the DAX reached new record highs again after it looked as if they were going to suffer severe slumps during the first lockdown as a result of the corona pandemic would be hard to recover quickly.
After the sharp crash including high volatility in February and March 2020, the markets recovered quickly (recognizable by the V-shape in the chart), the American leading index Dow Jones had reached the pre-Corona level at the end of 2020 and broke through in December even the mark of 30,000 points for the first time, as the following screenshot shows:
Source: MetaTrader 5 DJI30 daily chart, data range: July 29, 2019 to February 3, 2021, accessed on February 4, 2021 at 12:02 p.m. Please note: past performances are not a reliable indicator of future results.
Despite the general fluctuations in the stock markets, some young companies have managed to maintain the growth they had generated over the course of the year. A handful of these IPO stocks can look forward to very robust profits. If you want to know how you can get involved in the growth of such young companies, read on.
We'll discuss the pros and cons of investing in IPO stocks below. But first we want to clarify the terms regarding IPO and IPO shares.
What does IPO mean?
The abbreviation IPO stands for Initial Public Offering. In German we refer to this process as a company going public. This is the first time that a privately owned company is selling shares to the public on a stock exchange.
Companies that offer shares in this way are often relatively new and small and try to generate new financial resources and finance future growth by going public. Of course, this is not the case in all cases. Some companies are already huge by the time they go public. A good example of this is the IPO of the "Chinese Amazon" Alibaba, the largest in history to date. We will go into this in more detail in the next chapter.
If you are interested in investing in stocks, you could open an Invest.MT5 account with Admiral Markets. This gives you free access to 15 of the world's largest stock exchanges. You can invest in thousands of stocks and manage them as effectively as possible with the MetaTrader 5 trading platform.
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The biggest IPO in history: Alibaba
One of the biggest IPO success stories in the recent past was Alibaba's (BABA) listing on the New York Stock Exchange (NYSE) in September 2014. The IPO share opened at $ 92.70 and is now (February 2021) at 263.97 USD, which corresponds to an increase of almost 185%.
The Chinese internet trading giant is the largest trading company in the world, its market capitalization at the time of this writing (February 2021) was $ 687.32 billion. The company is almost the size of Facebook ($ 759.37 billion). On so-called "Singles Day" in November 2020, it set a sales record by selling goods worth EUR 47.7 billion within 24 hours. For comparison: On the record-breaking Cyber Monday in 2020, all retail companies in the United States combined reached USD 10.8 billion, an increase of 15%.
These are the biggest IPOs of all time
Some companies went public last year and enjoyed a flourishing share price. The following table shows five companies with double-digit or greater growth rates:
$ 25.6 billion
$ 25 billion
General Motors Company
$ 20.1 billion
Agricultural Bank of China
$ 19.2 billion
Industrial and Commercial Bank of China
$ 19.1 billion
NTT DOCOMO, Inc.
$ 18.4 billion
$ 17.9 billion
AIA Group Ltd.
$ 17.8 billion
$ 17.4 billion
$ 16 billion
Deutsche Telekom AG
$ 13 billion
At this point we want to emphasize that past performances of stocks do not guarantee future profits. Nonetheless, it is noteworthy that these former newbies have shown such stable growth rates despite recent developments. So what recent IPOs have you had? And which ones are still ahead? We want to answer that in the next section.
These IPOs were interesting in 2020
In this section, let's take a look at two IPOs that made headlines in 2020.
IPO # 1: Airbnb
The housing agency Airbnb (ABNB.US) had already considered its initial public offering for 2019. On December 10, 2020 the time had come: Thanks to the strong interest from investors, Airbnb was able to increase the issue price to USD 68 per share. At the time of the IPO, the share even more than doubled to USD 146. The company's market value had risen to $ 100 billion after close of trading.
Since the company had already adjusted the issue price upwards several times before the IPO, it was all the more astonishing that such a price explosion occurred. In total, Airbnb raised $ 3.5 billion with the IPO.
Buy Airbnb stock
Due to the corona crisis and the associated very limited travel activity of most people, it was unclear how great the interest in the Airbnb IPO would be. The company was able to recover quickly thanks to the increased demand for short trips by car. Airbnb also sees potential in the increased use of home offices: This could lead to many people working in different places and taking advantage of the Airbnb offer there.
However, Airbnb is not yet in the profit zone. Although sales increased by USD 219 million in the last quarter of 2020, this is offset by losses of USD 697 million from the first three quarters of 2020. This has so far not had any negative effects on the share price, as the following chart shows:
Source: MetaTrader 5 ABNB.US H1 Chart, data range: December 10, 2020 to February 4, 2021, accessed on February 4, 2021 at 12:54 p.m. Please note: past performances are not a reliable indicator of future results.
IPO # 2: Doordash
The IPO of the food delivery service Doordash (DASH.US) on December 9, 2020 grossed $ 3.4 billion for the company and was considered a great success. The issue price, which was raised several times, was USD 102, the first price USD 182. The price even closed at USD 187. Doordash's market capitalization was $ 60 billion. For comparison: That is over one and a half times that of the European competitors Delivery Hero (DHER) and Just Eat Takeaway combined.
Doordash benefited greatly from the Corona crisis, as many people have to stay at home and order their food there. This huge influx was reflected in the massive interest in the Doordash IPO, which exceeded even the highest expectations. The share was in an upward trend until mid-January, since then interest in it has declined slightly, as the following chart shows:
Source: MetaTrader 5 DASH.US H1 Chart, data range: December 9, 2020 to February 4, 2021, accessed on February 4, 2021 at 13:06. Please note: past performances are not a reliable indicator of future results.
These IPOs could be interesting in 2021
In this section, we want to look ahead to 2021 and see which upcoming IPOs could be interesting. It should always be noted that an IPO can always be canceled or postponed at short notice (as was the case, for example, with the IPO of Uber (UBER) in 2019).
IPO # 4: Suse
The technology company Suse from Nuremberg could complete its IPO in the first half of 2021. A market capitalization in the mid to high single-digit billion range is expected for open source software developers. It belongs to the Swedish financial investor EQT.
IPO # 5: Byte dance
The Chinese Internet company Bytedance is best known for its TikTok app, which is very popular among young people. It is competing with Snapchat (SNAP), which went public in 2017. However, Bytedance already has three times the number of active users. It is particularly interesting for potential investors that Bytedance achieved a net profit of USD 3 billion in 2019. In the first quarter of 2020, sales were $ 5.6 billion. Thanks to 315 million new users in the first quarter of 2020, according to Bloomberg, a market capitalization of USD 100 billion was reached.
IPO # 6: Wintershall Dea
Wintershall Dea is a subsidiary of the chemical company BASF (BAS) and operates in the oil and gas industry. The rating of Wintershall Dea is in the double-digit billion range, but the social mood regarding climate change could put a damper on this rating. For Wintershall Dea, it is important whether you can credibly demonstrate that you are following the ESG criteria. The company actually wanted to go public in the second quarter of 2020, but that was canceled due to a drop in sales.
This is how you can invest in IPO stocks at Admiral Markets
To invest in IPO stocks at Admiral Markets, simply follow these instructions:
▶ ️ Open the MetaTrader 5 trading platform provided free of charge by Admiral Markets. If you have not yet downloaded and installed it, you can do so here.
▶ ️ As soon as you have opened the platform, select “View” and “Market Overview” in the menu bar or use the shortcut Ctrl + M.
▶ ️ Right-click in the market overview and select “Symbols” or use the shortcut Ctrl + U. In the symbol window you can search for all possible base values by entering the desired values in the search bar.
▶ ️ After you have selected the desired symbol, click on “Show Symbol” and “OK”. It is now in the market overview. There you can click on it, hold it down and drag it onto the chart window. Right-click in the opened chart and select “Trade” and “New Order” or use the shortcut F9. In the order window that is now open, you can enter the order type, opening price, volume, stop loss and take profit:
Source: MetaTrader 5 order window
Should I invest in IPO stocks?
We looked at some promising success stories as well as some companies that may offer IPO stocks in the future. As with any equity investment, it is important to make informed decisions. You should research who runs the company and assess the long-term chances of success of the entrepreneurial business model. In any case, it is worth opening an Invest.MT5 account with which you can invest in stocks and ETFs worldwide.
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This material does not contain and should not be construed as investment advice, investment recommendation, offer or solicitation of any type of transaction in financial instruments. Please be aware that articles like this are not reliable predictions of current or future developments, as circumstances can change at any time. Before making any type of investment, you should seek the advice of an independent financial advisor to ensure that you have a proper understanding and assessment of the risks involved.
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