Deliveroo and Coinbase shares: what investors can learn from launches

Deliveroo and Coinbase shares moved enormously in their first days of trading. Ben Hargreaves describes his best way to react to such IPOs.

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The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

3D Word IPO with Target on Chalkboard Background

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The variation in the price of Deliveroo (LSE: ROO) and Coinbase (NASDAQ: COIN) shares during their opening days on their exchanges can only be described as a rollercoaster. Deliveroo shares dived immediately after its IPO and subsequently recovered in fits and bursts, though without threatening to close the gap back to its initial 390p price. While for Coinbase shares, which were available through a direct listing rather than a traditional IPO, the price surged to over $400 before coming to rest at around the $340 point, currently.

One lesson that should be immediately clear is that getting into the hottest tech IPOs early is by no means a guarantee of financial reward. If you had bought at the highest price point for Deliveroo and Coinbase shares then you’d presently be down 37% and 16%, respectively.

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Lessons to be learnt

As other writers on have concluded, it’s usually best to take a wait-and-see approach with IPOs that arrive with a significant amount of hype. The entrance of Deliveroo and Coinbase shares onto the market were the two listings that attracted the most interest so far this year because they acted as a proxy for market sentiment. The Deliveroo IPO was the biggest listing on the LSE for a decade and from a tech company that has not yet turned a profit, generating interest to see how it would perform. For its part, the Coinbase IPO was widely seen as broader gauge of the market’s trust in cryptocurrency.

With so much interest and publicity, it was inevitable that the opening days after listing would produce some big variations in share price. That’s why the advice to sit back and let the share price find its level before considering investing is important.

What does the future hold

After Deliveroo’s trading update, I would not consider its shares at the current price. Though there were positives, such as the company growing its monthly active consumer base, the fact that the UK is heading out of lockdown and into a world where restaurants are open could put a dampener on future results. The business also needs to find a way to become consistently profitable, which could take time and weigh on its valuation.

While Coinbase shares have only been available for a few days, it’s safe to say that there is still potential for big price swings up or down. Only yesterday, the price of leading cryptocurrencies suffered a big drop, with Bitcoin falling more than 11%. As the market is closed, we can’t know how this will impact the price of Coinbase shares but there could well be a knock-on effect.

Moving into the longer term, Coinbase shares will rise and fall dependent on how far cryptocurrencies are accepted as a legitimate part of the financial world. Should there be wider utilisation, as seen with Tesla and Paypal, then Coinbase should reap the rewards. As the company makes its money from each transaction on its platform, the wider the adoption and the greater the uptake of cryptocurrency, the greater potential profit it can make.

I will personally keep a close eye on news surrounding cryptocurrency and look to purchase Coinbase shares should there be further signs of cryptocurrency adoption by major businesses and financial institutions.

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Ben Hargreaves has no position in any of the shares mentioned. The Motley Fool UK owns shares in PayPal. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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