This public offering could be the year’s biggest pitfall
The market is on the edge of its seat awaiting the IPO of a transformational company. Here’s why you should take a pass.
The market has undergone some radical changes in the last few years.
The advent of commissions free trading and user-friendly trading platforms has resulted in a wave of retail investors entering the market.
Since the COVID-19 pandemic began, roughly 10 million new retail investors with billions of dollars of fresh capital have entered the market..
And companies around the world are scrambling to get their share of all of that money.
While we’re only a little more than halfway through 2021, we’ve already seen a record setting number of IPOs this year as more and more businesses look to raise capital by going public.
Already this year, we’ve seen more than 600 companies raise hundreds of billions of dollars from initial public offerings.
That trend doesn’t look to be slowing down anytime soon, as plenty more companies are lining up their own IPOs for the second half of the year.
Perhaps the most highly anticipated IPO for the remainder of 2021- from one company that has helped usher in this new era for the market – is starting to make some waves this week.
A large number of investors are prepared to sink a ton of cash into this IPO.
Where’s the money?
In its latest SEC filing on Monday, Robinhood Markets Inc. indicated that it is seeking a valuation of up to $35 billion for its IPO.
The online brokerage – which rose to prominence by marketing to retail investors as a broker “for the people” that offered free trading and an easy-to-use platform – is planning to offer 55 million shares at a price target of $38 to $42 per share.
And the there is likely no shortage of novice investors that will jump at the opportunity.
Of the 10 million new investors that entered the market in 2020, approximately 6 million of them opened a Robinhood account.
While the date is still up in the air, Robinhood is aiming to raise $2.2 billion in capital with its IPO, presumably sometime before the end of the year.
This incredibly popular broker has a big following that will presumably buy up shares once they become available.
But I believe they’ll be setting themselves up for a big loss by doing so.
How do I get some?
I do not like Robinhood as an IPO the same reason I did not like Coinbase Global, Inc. (COIN) – the first publicly traded cryptocurrency exchange.
The hype surrounding the IPO of popular companies often leads to overvaluation and buying activity that can’t sustain the price levels that are created in the first few days of trading. Coinbase is a great example, having fallen from $430 after its IPO to less than $220.
The problem with Robinhood – in addition to its initial valuation being near the top end of what analyst projected – is that I think a lot of retail traders are bowing out after they have seen the “Meme Stocks” fall lately.
In addition, Robinhood could face a series of legal battles in the near future as the pay for order flow system is coming under increased scrutiny from politicians and regulators.
Robinhood has already been fined a record $70 million by the Financial Industry Regulatory Authority for misleading customers about options and margin trading, and additional fines could be on the way as more investigations unfold.
In the end, I believe the Robinhood IPO will be a flop, and I would recommend staying far away from it.
A better way to trade IPOs
Right now, we are in what I can only describe as a perfect storm.
Since November 2020, $569 billion in new capital has flowed into the market. And with the addition of 13 million new traders, over 500 companies are actively looking to go public right now.
And by securing your “pre-IPO rights” you can potentially watch them rise to gains you never imagined possible.
We’re talking exceptional peak gains of 2,088%, 6,566%, 8.280%, 9,075%, even 27,550%.
And if those gains happened in the past, we’re sure they could happen again – and every minute that goes by is a minute lost.
A veteran economic analyst now calls these pre-IPO rights the “best-kept secret of the investment world.”
Today, Shah Gilani is going to pull back the curtain on a very secretive corner of the market that you probably never knew even existed.
Many of these opportunities can be had for as little as $1.
In the Spotlight: salesforce gets the green light
The acquisition of Slack Technologies, Inc. (WORK) by salesforce.com, inc. (CRM) was one of the largest deals of the last year.
And yesterday, the merger cleared one of its biggest remaining hurdles.
As scrutiny of anti-competitive acquisitions have come under a lot of scrutiny lately, concerns were mounting that the Department of Justice could throw a wrench into the $27.7 billion merger between WORK and CRM.
But shareholders rejoiced yesterday as the DOJ dropped its investigation into the deal.
This marks what was likely the final roadblock to the merger closing. Both stocks have surged over the last year as businesses around the world have shifted their day to day operations to digital platforms.
With the merger, CRM will look to gain additional market share on competitors like Microsoft Teams and Zoom.
I’ll be keeping a close watch on CRM for a good entry position, as I believe this stock still has room to run to the upside, despite an already impressive move. Stay tuned.