Published by Jessica Weisman-Pitts
Posted on August 4, 2021
By Liz Olsen, Head of Strategy, EMEA
Despite the economic turmoil of the past eighteen months, Initial Public Offerings (IPOs) have increased globally. A flood of cash into the market coupled with a raft of selloffs have presented an opportunity for many businesses to capitalise.
If IPOs have become ‘two a penny’ – or ‘two a billion’ (as the case may be) – there’s still certainly much that distinguishes them.
Deliveroo’s launch earlier this year was widely heralded as a disaster, yet shares in food delivery app Zomato – one of India’s biggest tech start-ups – have just gone on sale in a $1.2bn (£870m) IPO. The announcement came in the same week that Brazil biofuel producer Raizen announced it sought to raise $1.34 bn in IPO. This is just a few weeks after two senior members of Congress called on the Securities and Exchange Commission to investigate whether Didi Chuxing, the Chinese ride-sharing company, misled US investors ahead of its initial public offering.
What makes a ‘good’ IPO? What makes a bad one? And which are downright ugly …
The ‘it’ factor
Despite tepid US-China relations, XPeng Motors, the Alibaba-backed electric vehicle (EV) auto brand, launched one of the biggest IPOs of the year in August 2020 into a quickly crowding mobility space. Although predicting the sale of 85 million shares at between $11 and $13 USD, the brand sold 99.7 million shares at $15 USD and closed at just over $21 USD in one day. But what has made this IPO, and others such as XPeng competitor Li Auto, so successful?
The ‘it’ factor is a clear combination of financial status, business outlook and potential returns. And rightfully so. However, one aspect often overlooked for the success of IPOs is brand positioning. A quick look at XPeng’s branding will illustrate that it is not an EV brand focused solely on the environmental advantages of moving away from fossil fuel-powered machines. In fact, it screams innovation, high performance, technology, design – all of the attributes the true car-lover seeks. Where other brands show family day trips with happy children driving through the countryside, XPeng shows its P7 drifting around the racetrack.
XPeng sees the direction the world is going. That the days of petrol and diesel-powered engines are numbered. That battery technology is perpetually evolving, and infrastructure is becoming more common. However, more importantly, they realise that while environmental responsibility is on customers’ minds, it may not be the sole reason they choose the brand.
Our recent research uncovered that new parents who would consider buying an EV would do so for multiple reasons beyond the environment. While of course you will never convince every car enthusiast that a silent engine is as powerful and fun as combustion, it’s likely the next generation of drivers will be happy with the ‘powerfully quiet. ‘
Whether XPeng will be able to challenge Tesla in the US market or not remains to be seen. But this brand has defiantly thrown the gauntlet down to other EV brands looking to challenge in this space.
Distinctly lacking distinction?
GoHealth (the medicare-focused health insurance marketplace) had an IPO that hit with a bang when it raised $914m USD in July 2020. However, the celebrations were short-lived, as the value dropped. It’s hard to pinpoint where this IPO went wrong, looking at how a brand like Lemonade, the general insurer, performed since its IPO. The financials appear to be sound with total revenue up by 72% by September of last year. The brand is solid and based on what feels like an authentic purpose; to improve access to healthcare in America. But is it uniquely different? It’s hard to see how GoHealth improves access more than many other competitors in the field. With a boost to the market from the recently signed American Rescue Plan, competition is fierce.
Whatever the reasons for this underwhelming performance post-IPO, GoHealth’s story appears to be far from over, and the brand needs to find its true differentiator to stand out in the future.
When actions and values conflict, the public spotlight burns …
When a group of independent day traders on Reddit began to buy up one of the worst performing stocks earlier this year, it drove the price to unexpected heights. It also uncovered a hole in the system never before exploited. While hedge funds were caught out on a short by Redditors, caught in the middle of the drama was online broker Robinhood, known for its desire to democratise the market.
Facing the impossible decision of either going out of business or pausing the ability of customers to buy Gamestop stock, the Robinhood brand took a major hit. With a plan to IPO later this year, how much damage this has caused the brand remains to be seen. However, it seems clear that by going against its brand purpose, the brand will lose the support of loyal customers and one-time brand advocates, likely having a significant effect on the prospects for the IPO.
For a brand that likely saw its platform used in a way it had not initially intended, a decision was forced on the leadership to try and steer a course to save the company. The question that remains: Does the brand have the resilience to weather another storm of ‘democratised’ investors?
Sometimes it’s just not delivering …
And back to Deliveroo … In April, the company was guilty of a particularly ugly IPO launch, with CNN reporting that: “London’s biggest IPO since 2011 was an unmitigated disaster. The stock plunged when trading started on Wednesday, and the shares eventually closed 26% below their listing price, wiping almost £2 billion ($2.8 billion) off Deliveroo’s initial market capitalisation. The stock lost another 1.9% on Thursday. The opening day performance marks the worst London debut for a major IPO in at least two decades, according to data provider Dealogic. One of the company’s bankers told the Financial Times that it was “the worst IPO in London’s history.”
What was this all about? Surely, a host of reasons, and many were proffered, including pricing, timing, uncertain business prospects, concerns over how the company treats workers and increased regulatory risks facing gig economy companies. Indeed, it’s yet further proof that a company’s brand and the success of its IPO launch are inextricably linked. IP success in these trying times is possible – but is not without its potential pitfalls.
By Liz Olsen, Head of Strategy, EMEA
Despite the economic turmoil of the past eighteen months, Initial Public Offerings (IPOs) have increased globally. A flood of cash into the market coupled with a raft of selloffs have presented an opportunity for many businesses to capitalise.
If IPOs have become ‘two a penny’ – or ‘two a billion’ (as the case may be) – there’s still certainly much that distinguishes them.
Deliveroo’s launch earlier this year was widely heralded as a disaster, yet shares in food delivery app Zomato – one of India’s biggest tech start-ups – have just gone on sale in a $1.2bn (£870m) IPO. The announcement came in the same week that Brazil biofuel producer Raizen announced it sought to raise $1.34 bn in IPO. This is just a few weeks after two senior members of Congress called on the Securities and Exchange Commission to investigate whether Didi Chuxing, the Chinese ride-sharing company, misled US investors ahead of its initial public offering.
What makes a ‘good’ IPO? What makes a bad one? And which are downright ugly …
The ‘it’ factor
Despite tepid US-China relations, XPeng Motors, the Alibaba-backed electric vehicle (EV) auto brand, launched one of the biggest IPOs of the year in August 2020 into a quickly crowding mobility space. Although predicting the sale of 85 million shares at between $11 and $13 USD, the brand sold 99.7 million shares at $15 USD and closed at just over $21 USD in one day. But what has made this IPO, and others such as XPeng competitor Li Auto, so successful?
The ‘it’ factor is a clear combination of financial status, business outlook and potential returns. And rightfully so. However, one aspect often overlooked for the success of IPOs is brand positioning. A quick look at XPeng’s branding will illustrate that it is not an EV brand focused solely on the environmental advantages of moving away from fossil fuel-powered machines. In fact, it screams innovation, high performance, technology, design – all of the attributes the true car-lover seeks. Where other brands show family day trips with happy children driving through the countryside, XPeng shows its P7 drifting around the racetrack.
XPeng sees the direction the world is going. That the days of petrol and diesel-powered engines are numbered. That battery technology is perpetually evolving, and infrastructure is becoming more common. However, more importantly, they realise that while environmental responsibility is on customers’ minds, it may not be the sole reason they choose the brand.
Our recent research uncovered that new parents who would consider buying an EV would do so for multiple reasons beyond the environment. While of course you will never convince every car enthusiast that a silent engine is as powerful and fun as combustion, it’s likely the next generation of drivers will be happy with the ‘powerfully quiet. ‘
Whether XPeng will be able to challenge Tesla in the US market or not remains to be seen. But this brand has defiantly thrown the gauntlet down to other EV brands looking to challenge in this space.
Distinctly lacking distinction?
GoHealth (the medicare-focused health insurance marketplace) had an IPO that hit with a bang when it raised $914m USD in July 2020. However, the celebrations were short-lived, as the value dropped. It’s hard to pinpoint where this IPO went wrong, looking at how a brand like Lemonade, the general insurer, performed since its IPO. The financials appear to be sound with total revenue up by 72% by September of last year. The brand is solid and based on what feels like an authentic purpose; to improve access to healthcare in America. But is it uniquely different? It’s hard to see how GoHealth improves access more than many other competitors in the field. With a boost to the market from the recently signed American Rescue Plan, competition is fierce.
Whatever the reasons for this underwhelming performance post-IPO, GoHealth’s story appears to be far from over, and the brand needs to find its true differentiator to stand out in the future.
When actions and values conflict, the public spotlight burns …
When a group of independent day traders on Reddit began to buy up one of the worst performing stocks earlier this year, it drove the price to unexpected heights. It also uncovered a hole in the system never before exploited. While hedge funds were caught out on a short by Redditors, caught in the middle of the drama was online broker Robinhood, known for its desire to democratise the market.
Facing the impossible decision of either going out of business or pausing the ability of customers to buy Gamestop stock, the Robinhood brand took a major hit. With a plan to IPO later this year, how much damage this has caused the brand remains to be seen. However, it seems clear that by going against its brand purpose, the brand will lose the support of loyal customers and one-time brand advocates, likely having a significant effect on the prospects for the IPO.
For a brand that likely saw its platform used in a way it had not initially intended, a decision was forced on the leadership to try and steer a course to save the company. The question that remains: Does the brand have the resilience to weather another storm of ‘democratised’ investors?
Sometimes it’s just not delivering …
And back to Deliveroo … In April, the company was guilty of a particularly ugly IPO launch, with CNN reporting that: “London’s biggest IPO since 2011 was an unmitigated disaster. The stock plunged when trading started on Wednesday, and the shares eventually closed 26% below their listing price, wiping almost £2 billion ($2.8 billion) off Deliveroo’s initial market capitalisation. The stock lost another 1.9% on Thursday. The opening day performance marks the worst London debut for a major IPO in at least two decades, according to data provider Dealogic. One of the company’s bankers told the Financial Times that it was “the worst IPO in London’s history.”
What was this all about? Surely, a host of reasons, and many were proffered, including pricing, timing, uncertain business prospects, concerns over how the company treats workers and increased regulatory risks facing gig economy companies. Indeed, it’s yet further proof that a company’s brand and the success of its IPO launch are inextricably linked. IP success in these trying times is possible – but is not without its potential pitfalls.
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