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Krispy Kreme prepares to go public again, Bumble disappoints investors

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Yahoo Finance's Myles Udland, Julie Hyman and Brian Sozzi break down how the IPO market is faring amid the pandemic and which IPOs to watch out for in the latter half of 2021.

Video Transcript

JULIE HYMAN: We've got some IPOs news that's coming through. Not just IPO news, of course, but just a couple of the day's news of various kinds. And we like to talk about those, get a check on what's happening.

One of them is one that we know already quite well. And that's Krispy Kreme Donuts. The company is filing to come public again, after it was public before. And it's also giving out some of its numbers. Brian Sozzi's pumped for this one. The thing I'm most pumped for is we're not getting KKD anymore. That's not the ticker. The ticker is going to be D-N-U-T, Brian.

BRIAN SOZZI: As it should be, right? Listen, I'm excited about this one, because I remember covering the deal when it closed in 2016. And it will be interesting to see where valuation falls, or fair value falls on the eventual IPO day. Krispy Kreme was taken private by JAB, the very secretive overseas company that has been gobbling up coffee companies for years, for $1.35 billion. Let's keep in mind, Dunkin' Brands was sold to Inspire Brands, the owner of Arby's and Buffalo Wild Wings, last year for $11.3 billion. So somewhere in between those numbers is going to be fair value for Krispy Kreme.

And there's a lot to chew on here in the S-1 that was released from Krispy Kreme this morning, which was pretty good. I mean, their first quarter results, sales were up 25% year over year, adjusted profits up about 26% year over year. So a profitable restaurant company. I like the fact that sales last year rose about a 20% clip, $1.1 billion, them making money.

Also, fun fact, 87% of their US locations have a drive-through. That is very important in life after pandemic for any fast food company, especially Krispy Kreme. Also worth noting here, 9,077 points of distribution globally. They've been able to almost double that number since they have been a private company. Very important there, or at least a telling indicator of what consumer demand could be moving forward.

MYLES UDLAND: And they also own Insomnia Cookies, which is the more urban, college-centric play, perhaps, on Krispy Kreme, which I think doesn't really connect with us as much in the Northeast, considering its expansive footprint in the Southeast. And Sozzi, as you mentioned, most of those locations with the drive-thru, not exactly the space for that kind of thing up here.

JULIE HYMAN: But there is space for Insomnia Cookies, I guess, to be delivered to your door.

Let's also talk about a recent IPO that's getting a bunch of initiations. That is Honest Company, that Jessica Alba-backed kid product company, kids personal care, I guess you would call it, baby personal care. And it looks like a bunch of the analysts here are pretty positive on the stock. We've got Citigroup initiating coverage. We've got JPMorgan out with coverage. Both of them are positive. Guggenheim positive as well. So I guess the baby business is good, so far, at least in the view of these analysts, Brian.

BRIAN SOZZI: Yeah. I'm surprised to see the muted reaction to this one. Sure, Honest Company has not made money, not a profitable company. And most of the Street don't expect them to make money until next year. But really, a good consumer brand, a well-known consumer brand built literally from the ground floor by Jessica Alba, a lot of good positive catalysts in this business. I'm just reading the Guggenheim note from Laurent Grandet, a long-time beverage and consumer products analyst over at Guggenheim. He says the next catalyst may not come until June. And that's when they report their first quarter results, or their first results as a public company. June, which would be this month, Myles.

JULIE HYMAN: It is upon us.

MYLES UDLAND: Yeah, I mean I think-- yeah, I think what piqued our interest, though, with Honest and thinking about the broader IPO space, and we'll see how the reception is with SoFi, is just some enthusiasm coming out of the market for a lot of these buzzy new issues. I mean, look at the chart of Bumble, hasn't exactly been a high flyer since its public debut. Vimeo, a company we talked to just last week. That stock was under pressure all week. Now granted, the problem for Vimeo is a mass liquidity event for folks who, and investors, whether it's insiders or long-time shareholders, if you had owned IC and you got a share of Vimeo, maybe you didn't want to actually own the company. All kinds of structural reasons going against that business.

Even look at Coinbase, where that had its huge pop and then has really come down some. There's just a lack of enthusiasm now for these new issues that I think has really changed the tenor of the market in pockets of it. And yet this morning, when you look at the major averages, basically at record highs for the Dow and the S&P right now.

JULIE HYMAN: Yeah. And it's interesting, because this sort of momentum was fueling the major averages for a while, whether it was meme stocks or SPACs or new issues of any kind. And there's now a little bit more divergences between these.

You know, I was looking at the IPO ETF, which I like to check on when we're talking about IPOs. This is a Renaissance IPO ETF. It's down on the year. And this is companies that are not fresh fresh. I think they have to be public for, what, about a month or something to get into this ETF. But it's down 4% year-to-date. And I was looking at some of the underperformers within this particular index. And you have GSX Techedu, which has had some concerns and questions about its fundamental business. But C3.ai as well. Fastly is one of those that's been a bad performer. Peloton is in this ETF as well. Xpeng, which we were just talking about in terms of its deliveries. And all of these guys have fallen on the year here.

So on all of that-- I mean, and granted, these are IPOs. I don't know if we just kind of lumped together, should be lumping together IPOs and SPACs and direct listings, at this point. Although, as we know, SPACs tend to be a little more speculative. But SoFi is, as we mentioned, is one of those that is going to begin trading today. Brian, you're going to be talking to CEO Anthony Noto later. This guy is a fintech and financial industry veteran. It is interesting that they chose a SPAC in order to go public.

BRIAN SOZZI: Yeah. Well, I'm just-- real quick, I want to point out the stock action. SoFi shares down now about 5% here in about 20 minutes of trading. So another, as we've been talking about, muted reaction to an IPO.

But I will note this, too. SoFi is making money. They've had seven quarters of accelerating revenue growth. Just late last week, they reported first quarter sale, first quarter members up 110% year over year, to 2.3 million members. So that checks one of the boxes. Also, they have had three quarters of positive EBITDA growth. In other words, they, on an operating profit basis, they're making profits.

And last but not least, they just also added two heavy hitters to their board, also disclosed last week. Harvey Schwartz, former president and COO over at Goldman Sachs, and Dick Costello, former Twitter CO. These are two folks that Noto has known for a while. And he was a former Goldman Sachs banker, way back in the day, and obviously was also the former CFO over at Twitter. So a very experienced veteran CEO taking the helm here of a SoFi. He joined the company in 2019.

MYLES UDLAND: Yeah. And just going back to the space in general, Julie, to circle back to the thing you were saying, the executives of all these companies and their backers and all, they don't want to think of the IPO or SPAC market as an asset class. And yet, when things are going well, they do. And they cite market conditions when they pull listings. They cite market conditions when they decide to come to market.

And so it is a classic example-- and there are so many instances of this in financial markets where, on the way up, it's, you know, it's all correlated, it's all good, it's a new grouping. It's the vision of the future. And then on the way down, it's actually super differentiated, we don't need to be lumped in with those other guys.

And of course, in life, you cannot have it both ways. And I think that a lot of these businesses, to your point, Sozzi, SoFi's making money. A lot of the peers in its SPAC space, or its new issue space, are not. One might say it's not fair for SoFi to get lumped in with that. And yet, if you looked at the way that the shell company, I think it was IPOE was the one that SoFi traded under, the way that that acted when the announcement first came out, well, they got to enjoy the spoils of the space at large on the beginning of this process. And now, by the time they actually come to market in June, they're facing the market pressures broadly, whether they like that or not. It's just, you know, that is the way that things operate in public markets.

JULIE HYMAN: Yeah, I mean, and you know, even though they're down today, to your point, obviously if we see these SPACs come public at 10 and it's trading at over 20, that shows you what the shares have done.

And I think what you're saying, the point you're making differentiates the difference between investing in something as a structure and investing in something as a company, right? And we know that the game that people were playing in the beginning, where they were trying to arbitrage or wait for the deal being announced by these SPACs, that that has proven to be a little less consistent and reliable. But if you're buying a company for the long term because you think it's worth buying, that's something, you know, I guess we'll see eventually if it works out for something like SoFi or some of the other companies.