The risk tolerance for new offerings has vaporized. It's creating an opportunity trading IPOs though. I've watched new issue after new issue open lower, then bounce hard. DigitalOcean (DOCN) opened lower on its first day but buyers in the first 5 to 10 minutes saw quick gains of 10% over the next few hours. That stock has continued to see intraday flushed in 5 to 15 minutes intervals of high volume followed by strong bounces. I do think the weakness presents a longer-term opportunity, especially sub $40, but the stock is likely to remain volatile. We could just as easily see $35 as $45 next week. Heck, it may see both. It's a scale in slowly for me.
Cricut (CRCT) opened sub $16 yesterday after pricing at $20. Traders in the first 20 minutes could have had shares between $15 and $16. Within an hour, they were back to $18. Today, they are in the mid-$19s and trading in a tighter range.
Vizio (VZIO) priced at $21 but opened at $17.50. It never broke those opening lows and finds itself near $22 two days later.
ThredUp (TDUP) priced at $14 last night with 12 million shares hitting today. This is a smaller than the other three, so we may not see the weakness but if we do see an open in the $12 to $12.50 range, it has to be a consideration for me on the buy side given the action we've seen in three other IPOs this week.
Two offerings I have no interest in on the SPAC side are BowX Acquistion (BOWX) buying (bringing public) WeWork for around $9 billion, or Silver Valley Acquisition (SV) bringing AeroFarms public. I do like the AeroFarms business, indoor vertical farming, but a company with $4 million in 2021 projected revenues and $13 million in 2022 projected revenues with a fully diluted equity value of $1.2 billion feels a tad rich. Even if we use the enterprise value of $862 million, I'm not getting the warm and fuzzies.
I always get concerned at hockey stick revenue numbers, especially in a space without a moat. Going from $4 million in 2021 to $163 million in 2024 to $550 million in 2026 is beyond a hockey stick. The most amazing part is it doesn't project to be EBITDA positive until 2025, you know after it has taken revenues from $4 million to $330 million in four years. It's worth noting the company has been innovating vertical farming for 15 years. So, after innovating for FIFTEEN years, you're telling us you have $4 million in projected revenue in 2021? What have they been doing for the past 15 years? Yes, they have some patents, trade secrets, and overall IP, but there isn't a huge barrier to entry here and location can offset some of those enhanced growing techniques.
It's not that it's a bad company. It's a bad valuation in my view. I feel some SPACs are willing to pay up huge valuations just to get a deal in an overcrowded market. This is where I believe management is going to matter in 2021 whereas it wasn't as much a concern in 2020.
