James Gellert, RapidRatings CEO joins the Yahoo Finance Live panel to discuss SPAC/IPO trends for 2021.
SEANA SMITH: Record-breaking IPO filings in the month of November, bringing some of those big names that we’ve been waiting for to the public market before the end of the year. And for more on that, we want to bring in James Gellert. He’s the CEO of RapidRatings. And James, great to have you back on the program. So November, obviously, very strong month here for IPO filings. What do you think is driving some of the underpinnings of the rebound that’s we’re seeing in the IPO market this year? Is it all because we’re right around record highs?
JAMES GELLERT: It’s all about liquidity and the momentum in the market. So we’ve got– we’ve got a handful of new investor, sort of, groups that have come into the market, retail being the most significant. And that’s getting a fair amount of airplay. That’s a factor. But really, the most significant is that we just have a bull market and because of the Fed stimulus and the Fed bond buying program launched earlier in the year as the pandemic response.
There’s just a tremendous amount of liquidity looking for yield. And they’re chasing deals. And the IPOs, the SPACs, the other instruments that have come into the market are benefiting in almost every single way.
ADAM SHAPIRO: James, there’s a figure out there that 20% of the companies that came public– to public markets this year did that via a SPAC. And there’s this whole discussion about the democratization of letting the average investor get in via that. But you’re still kind of susceptible with a SPAC at the lack of information that you’re susceptible to it, a traditional IPO. Are investors figuring this out?
JAMES GELLERT: I think institutional investors are figuring it out. And the biggest ones are starting their own SPACs. So it is ironic that, you know, this is a democratization in the sense that more retail investors can get in. But more retail investors are taking more risks than they’ve taken in the past. You got to keep in mind that the SPACs, the newer SPACs, structurally allow investors to get out without necessarily having to move forward with the investment.
But still, there are– it’s only a small percentage of SPACs that actually ultimately buy a company and make an investment. Absolutely true that the investors who are moving forward and continuing to keep their money in the SPACs post-investment may not have the same kind of access to information, may not have the same diligence that comes through an IPO in a normal roadshow kind of process. So there are more risks.
And you add to that that every company is under more pressure. Well, almost, there are plenty of biotechs that are doing quite well. But most companies are under more pressure than they’ve ever been, given the pandemic and the overall financial health stress that they’re under. So the kinds of companies that are being rolled into SPACs may be carrying a lot more risks than investors understand.
SEANA SMITH: James, is this something that you think is here to stay, when we see the rise of SPACs and also direct listings? I mean, do you think it’s a short-term trend or are these two options going to continue to grow in popularity?
JAMES GELLERT: Well, I wouldn’t lump them together. I think, with SPACs, it is a bull market phenomenon. They’ll always be around to some degree, but not with this kind of exuberance and records being broken quarter after quarter and launches. Direct listings really are, I think, different. Direct listings provide very good alternatives for companies to get their stock public, particularly when they don’t need new capital.
But the SPACs and traditional IPOs, generally speaking, are about raising new capital, and the direct listings really aren’t. So I kind of separate the three instruments and the three routes to market into those different categories.
ADAM SHAPIRO: James, you’ve got to love reading some of these S-1s for traditional IPOs because they’re really– I mean, why would you invest? It’s like, you could lose money, it’s what it constantly says, you could lose, you could lose. Take a look at DoorDash. I mean, that’s basically what they were saying. And then you get Airbnb. What do investors need to know about these two? Because everyone got very excited that they’re both coming to market before the end of the year.
JAMES GELLERT: Well, two big marquee names, they’ve been waited for for a long time in the market. So there is a lot of anticipation. They’re really quite different in an interesting way. From a financial health rating perspective, which is our view on the one-year default risk of a company, they’re really in two different places. DoorDash carries a 50 out of 100 on our scale, and Airbnb is a 36. That’s only a piece of it.
The other piece is how they’ve been trending. So you’ve seen Airbnb coming down year after year, and this is pre-pandemic. And DoorDash has been relatively flat a little bit. Volatile, but relatively flat across that period of time. These two companies have benefited in– one has benefited DoorDash, Airbnb has certainly been hurt by the pandemic. But the trends in their financial health prior to the pandemic were already being set.
But if you look at something like Airbnb, you know, this is a company that has lost in the first nine months of the year a third of their revenue. Their loss has doubled. They’ve laid off double-digit percentage of their employees, they have a 36 FHR. You know, there’s a lot to be concerned about there. That being said, with the bullishness in the market right now, the IPO will probably do fine because people aren’t as focused on fundamentals as probably they should be.
SEANA SMITH: All right, James Gellert, always great to have you on the show. CEO of RapidRatings. We’ll talk to you again soon.
JAMES GELLERT: Thanks, Seana.
Source: Yahoo Finance – We’re in a bull market and the IPOs and SPACs are benefitting: CEO