The craze for tech stocks continued apace when shares in dating app Bumble surged by more than 75% on its Nasdaq debut this week.Bumble opened at $76 on Thursday morning, which is well ahead of its IPO price of $43. It gave the firm a $14 billion valuation.
Entrepreneur Whitney Wolfe Herd, a co-founder of popular dating app Tinder, created Bumble in 2014, with backing from Russian billionaire Andreey Andreev. Its unique selling point is that only women can start a conversation when it comes to heterosexual matches.
Bumble and sister app Badoo are available in more than 150 countries, and the group claims to have more than 40 million active users, including 2.4 million paying customers. However, the pandemic caused its year-on-year growth rate to sink to around 15% for the first nine months of 2020, while it posted a $116 million loss. Yet that did not deter a buying frenzy when the stock commenced trading on Thursday. It reached a high of $79.60 before closing above $70.
IPO Mania Continues
Bumble follows in the footsteps of DoorDash, Airbnb and Snowflake, which enjoyed immensely popular IPOs in recent months. A first day pop for Airbnb temporarily took the firm’s market cap past the $100 billion mark, leaving co-founder and chief executive Brian Chesky literally speechless in an interview.
DoorDash raised $3.4 billion in its IPO and ended its first week with a market cap of $55 billion, which was more than three times the size of its private valuation.
It contributed to a record year for IPOs. There were 129 in 2020, compared to 110 the previous year, and they raised an estimated $252 billion. Investors have then been keen to get involved in the action on the first day of trading, leading to some sky-high valuations.
The top IPOs of 2020 were dominated by software companies including Snowflake, Unity, Airbnb, DoorDash, Palantir and McAfee. That trend looks set to continue in 2021, with online greeting card retailer Moonpig also seeing its share price soar after floating this month.
‘Highway to the Danger Zone’
Some analysts have warned that it bears the hallmarks of the dot-com bubble in the late 1990s, when many investors lost their savings after the likes of Worldcom, Pets.com, Webvan and Boo.com failed.
Outside of the dot-com bubble years, equities are the most expensive they have ever been in terms of price to expected earnings and price to inflation-adjusted earnings from the past decade. Many tech stocks have seen huge rallies that are disconnected from the underlying fundamentals.
CNBC’s Jim Cramer, the host of Mad Money, warned that the stock market is on a “highway to the danger zone”, and urged investors to exercise caution.
Some investors that are worried about frothy conditions have been ramping up their focus on value stocks, which performed well after the dot-com bubble burst, and alternative assets like commodities and crypto.
Yet others would contend that the state of the current market is a result of extremely low interest rates, which make bonds unappealing and increase the demand for stocks.