IPO Mania Hits The Market

IPO Mania Hits The Market

This week has been a test in patience and self-control, not least because two of the most hotly-anticipated IPOs of the year have both hit the market — Duolingo and Robinhood.

Well, nearly hit the market. As I write, we’re still waiting for Robinhood to start trading. Interestingly, the company has priced its shares at $38 a piece, the lower end of the guided range. Although this will still value the company at well over $31 billion, it might signal just a hint of investor caution towards such a divisive company.

There were no such worries for Duolingo. Yesterday, the language-learning app had an explosive start to its public life, closing up 36% above its IPO price at a valuation of almost $5 billion.  

The process of big, brand-centric companies like this going public is always very exciting for investors. Not only do we get a chance to dig into the S-1 filings and find out exactly what makes them tick, but it’s also our first chance as mere mortals to invest in these companies that a lot of us are already customers of.

Here at MyWallSt, we have an unwritten rule that we wait for at least two quarters before considering a company for addition to our shortlist.

There are a few reasons for this:

  • As seen with Duolingo yesterday, ordinary retail investors very rarely get a chance to buy the stock at IPO price. Waiting a while allows all of the hype (and related volatility) around an IPO to die down.

  • It gives us a chance to see how the company adapts to life on the public markets and, more specifically, the quarterly reporting hamster wheel. It’s no easy task to give comprehensive reviews of a businesses’ performance every twelve weeks.

  • Two quarters is usually enough time for lock-up periods to expire. It’s always very telling to see how much stock management and leadership sell in a company once they get a chance.

Of course, just because we hold ourselves back from adding these companies to our shortlist, doesn’t mean we completely ignore them. If you’re looking for our thoughts on these two companies as they go to market, just check out the First Looks we have written about them over the past few weeks: