Despite the challenges brought by the Covid-19 pandemic, 2021 had the highest number of initial public offering (IPO) launches in history. Global IPOs rose by 64%, while the proceeds rose by 67%. Given that the last quarter of the year was the most successful, the trend is expected to continue into 2022 and beyond.
The trend creates an investment platform for both beginners and experienced investors. However, investors should take time to study the unicorns and their Economic Moat before rushing to invest in IPOs. Here you will learn the basics of IPOs and what has driven the success of companies like Coinbase to help you make sound investment decisions.
The term initial public offering, popularly known as IPO, refers to the process of allowing the public to own part of a private corporation for the first time. Most businesses start as small private companies owned by the founders and a few other individuals. As the business grows, the owners sell part of their stake to the public to raise expansion capital.
However, small private corporations must meet the standards set by the Securities and Exchange Commission (SEC) before they are allowed to offer their shares to the public. The main hurdle for most companies is to get to the unicorn status, which means the startup has reached a private valuation higher than $1 billion.
Like other aspects of business and investment, IPO trends experience their crests and troughs. In the recent past, a year-by-year analysis shows that 2008 had the least number of initial public offerings, while 2021 has the highest. It is good to note that IPOs tend to follow the global economy, which explains why the 2008 global recession affected public offerings.
Although the global economy was affected by the pandemic, it started recovering after vaccine rollouts in 2020. By 2021, the economy had been revamped to record a 64% and 67% increase in IPO launch and proceeds, respectively. Q4 was the most active, meaning the upward trend will continue into 2022, meaning you will have more investment opportunities in the coming years. However, you should take a look at the corporation's Economic MOAT before buying its shares.
Although initial public offerings are regulated by the SEC, corporations have the prerogative of setting the dates. To make the shares attractive, companies post their IPO after positive performances on their bottom line. However, the company may not maintain its performance if it has weak economic moats. An economic moat is a competitive advantage that helps the corporation maintain an above-average performance in profitability.
A good IPO is one offered by a company that is not only an industry leader but one that has enough economic moats to keep it ahead of its competitors. However, IPOs from such companies may be highly valued to deny you an opportunity to sell the share for a profit in the secondary market. If you are experienced in the buy and hold strategy, buy low-priced stocks that have the potential to grow. Coinbase is an example of a corporation whose successful IPOs can stand the test of time.
Coinbase is a leader in consumer-facing cryptocurrency exchanges that had one of the most successful IPOs in 2021. The initial public offering closed at $328.28 per share and is expected to reach $500 within a year. The economic moat for Coinbase is its security features. Currently, Coinbase is one of the few cryptocurrency companies that has not been hacked. With the security guarantee, the company will continue to expand its market share and revenues. Coinbase may, therefore, be one of the best IPOs for investment options.
Right now is a beneficial time to look into investing in IPOs. For more information on what could be the next Coinbase IPO or what industries you want to be watching, check out our IPO Playbook for stocks that could give you a big win over the next year.