University of Florida Finance Professor and IPO Expert Jay Ritter joins Yahoo Finance Live to discuss the SPAC deal for the Peter Thiel-backed company Rumble, which has started trading on the stock exchange, and also weighs in on the Porsche and Instacart IPOs.
- So it was time to rumble today. Trading opens on the conservative Peter Thiel-backed alternative to YouTube. Yeah. The deal for Rumble, a new streaming service that fights cancel culture-- not my quote, theirs-- executed through a special purpose acquisition company, or SPAC, created by Cantor Fitzgerald. With more on the deal and the IPO market as a whole, we're joined by IPO expert and University of Florida finance professor Jay Ritter. Jay, good to see you. So shares popped nearly 40% on day one. What does that say about the market as a whole? And where have the SPAC mergers gone?
JAY RITTER: This is the most successful SPAC merger of the year. Almost every deal this year has had the vast majority of SPAC shareholders asking for their money back, redeeming their shares. With this SPAC, only 0.1% of the shareholders asked for their money back. So the company Rumble is raising $400 million. The stock jumped today. At this point, this is the SPAC merger of the year.
- Jay, is this going to help I guess reignite maybe this SPAC market? Because, clearly, investors prior to this hadn't really been interested in a number of companies that went public via SPAC. Do you think that's about to change?
JAY RITTER: I don't think this is going to have an enormous effect. Obviously, a good outcome is going to help the market. But by and large, investors in both the IPO market and the SPAC merger market are looking at companies on a deal by deal basis. And this is a company with rapidly growing subscriber counts. The fact that the Trump Media merger is in regulatory trouble. It's a potential competitor that looks like it's not going to be as much competition as could be the case. That's good for Rumble.
- And Jay, I want to ask you, of course, about the Porsche IPO. What are your takeaways there and your expectations for where you think this is going to go?
JAY RITTER: Yeah. Well, this is a spin off of Volkswagen, where 25% of the company is being sold to the public. But the shares being sold to the public are preferred shares with no voting rights. So investors get the opportunity to buy shares with no votes. Now, Porsche is much more profitable in terms of higher profit margins than Volkswagen as a whole.
And this is a well-established, big company with a good brand name that's profitable. So there's no question about investors being willing to put a pretty good valuation on the company, something in the vicinity of $70 or $80 billion. But in terms of European companies, this is the biggest offering and the biggest market cap of a European company going public in years.
- Instacart, Jay, plans to focus its IPO on selling employee shares, telling you what. And do you think, overall, this IPO market begins to pick up or continue to drop off for the rest of the year?
JAY RITTER: It is going to pick up a little bit from very low levels. Last year, it was a booming IPO market. This year has had very few quality companies going public. And the fact that there are a few last week, next week, and there will be some other established quality companies, but still not a lot. If the stock market continues to recover, there will be more. But Instacart is not like Porsche. Instacart rapidly grew when COVID hit. But its growth has rapidly decelerated, much like Peloton, like Zoom Video Communication.
And with Instacart and the grocery delivery business, it's not clear how profitable and how big that industry is ever going to be. So this is a company where it's not going to get an enormous valuation because there's no reason to think that the company is going to ever be able to be highly profitable. But on the other hand, it does have the biggest market share of companies in the grocery delivery business. So as with other companies, whether they're in IPO or already publicly traded, the issue is valuation.
- Well, Jay, what's it going to take to significantly turn the IPO market around? Because as we stand right now with only a couple of months left of the year, the IPO market is on track for its worst year that we've seen in decades.
JAY RITTER: Yeah. A rising stock market is going to be a necessary condition. But what we saw last year is, after a multi-year rally, the valuations and a lot of growth companies had just gone off the charts. And there's been a major reset in the last eight months or so. And to some degree, a lot of these private venture capital-backed companies kind of anchored on those high valuations last year, which just weren't sustainable. So once companies get used to the lower valuations that we're seeing in both public and private markets today, I think some of the privately-owned companies that are venture backed are going to tap public markets.
- All right. Jay RItter, it's always great to have you on the program. Thanks so much for joining us here at Yahoo Finance.