In a banner year for tech IPOs, retail investors made money by going small

Published Thu, Dec 31 202010:04 AM EST

(This story is for CNBC PRO subscribers only.) In a dismal year for the economy, IPOs flourished. The New York Stock Exchange had its busiest year in history for debuts. Snowflake , Airbnb and DoorDash held three of the 10 biggest offerings ever for U.S. tech companies. After raising more than $3 billion each, they all had massive pops, further igniting controversy about the IPO process and the amount of virtually free money being handed over to Wall Street and big institutions. Airbnb and Snowflake more than doubled right away, and DoorDash closed up 86%. The story for retail investors, who weren't able to get in at the IPO price, has been very different. They were locked out of the immediate gains and have little to show for buying afterwards. DoorDash investors who dove in after the huge initial pop have lost money, while Airbnb is up less than 3% since its first day, based on Wednesday's closing price. Snowflake, meanwhile, has just narrowly outperformed the Nasdaq since its pop in September. They're not alone. The 10 largest tech deals this year raised a combined $18.7 billion. But among them, only gaming company Unity has delivered investors with significant post-pop gains, with that stock more than doubling from its September debut close. Software company Palantir has jumped 151% since hitting the market in September, but that came after a direct listing in which no new shares were issued. Outside of Unity and Palantir, retail investors had to look downstream and across the country to make money from new tech issues. For those willing to dig deep, they may have found a few mega-hits. At least three U.S. tech-related IPOs this year have produced triple-digit gains since the close of their first trading day. Here they are, ranked by the size of the rally: Fathom Holdings With a sub-billion-dollar market cap, Fathom Holdings is anything but a household name — unless you're in a particular corner of the housing market. Fathom, founded in 2010, describes itself as a "cloud-based, technology-driven, full-service real estate brokerage" that helps its network of over 5,000 agents increase profits by keeping a higher percentage of their commissions. It also provides them with marketing and support services. The company, based in Cary, North Carolina, sold shares at $10 a piece in July. The stock hardly budged for the first two days and then tumbled 12% on day three. Since then, it's been a steadily bumpy ride, which is no surprise from a thinly traded stock. But investors who got in around $10 have seen their investment almost quadruple. The stock closed at $37.41 on Wednesday, valuing Fathom at just over $500 million. Last month, Fathom reported third quarter revenue growth of 74% from a year earlier to $55.8 million and said transactions completed in the period rose 56%. The company also said it had expanded into Oklahoma and West Virginia, and used some of its IPO proceeds to acquire Verus Title and move into title insurance. Still, it's a particularly risky holding for a retail investor. The only analyst covering the stock is Roth Capital's Darren Aftahi, who has a buy rating. On most days, fewer than 100,000 shares change hands, and on four occasions they've dropped more than 10% in a single session. That includes a 10% slide Tuesday, based on no apparent news. Schrodinger Started 30 years ago and based in New York, Schrodinger built what it calls a "physics-based software platform" that its sells to pharmaceutical companies and research institutions to aid with drug development. The stock climbed from its IPO price of $17 to close at $28.64 in its first day of trading Feb. 6. It's since jumped another 186% to $81.84, giving the company a market cap of $5.7 billion. In March, Schrodinger announced an expanded partnership with AstraZeneca for work on speeding development of antibodies and protein-based therapeutics, followed by a collaboration in June with Thermo Fisher Scientific for drug discovery. The stock jumped 12% on Nov. 23, after Schrodinger announced a deal with Bristol Myers Squibb "to discover, develop, and commercialize therapeutics in multiple disease areas." Schrodinger took advantage of its first-half rally to sell almost $350 million worth of stock in a secondary offering in August at $66 a share, almost quadruple the price of its IPO six months earlier. The company isn't as sparsely covered as Fathom, but it's not a name that retail investors will find particularly easy to follow. Only three analysts tracked by FactSet have ratings and price targets on the stock. Two recommend buying it and the other says hold. Corsair Gaming Unity was by far the most valuable gaming-related IPO of 2020, but a lesser-known company in the space called Corsair Gaming is bigger by revenue. A week after Unity's IPO in September came the market debut of 26-year-old Corsair , which is based in Fremont, California and sells peripherals including headphones, keyboards, power supply units and recording tools. Corsair's sales in the first half of the year climbed 42% to $689 million, topping Unity's $351 million in revenue. However, the businesses are very different, which explains why Unity's market cap of $41 billion is more than 12 times Corsair's valuation of $3.4 billion. Investors were initially much less enthusiastic for Corsair. The stock fell 16% on day one to $14.25, while Unity climbed 31% . They've both been lucrative bets since that point. Corsair has done the better of the two, climbing 159% to Wednesday's close of $36.89. Unity is up 127% from its first close. Corsair's gross margin, or the revenue left after accounting for the cost of goods sold, is just 27%, while Unity has hefty software gross margins near 80%. Unity's game development engine has become ubiquitous across much of the industry by giving developers tools to create 3D titles across all the popular platforms. Corsair sells popular gear but in highly competitive areas. Wedbush's Michael Pachter, in a note last month, said Corsair has "a defensible niche in what otherwise appears to be a commodity business." Corsair is proving that it can keep growing while taking advantage of a boom in gaming during the pandemic. The company boosted its full-year revenue and profit guidance on Nov. 30, thanks in part to its streaming products that allow users to share video content with friends. "Unlike many of its larger competitors, Corsair is firmly focused on the gaming segment, with the vast majority of its sales coming from a small, but dedicated and growing base of hard core gamers," Pachter wrote after the company raised its forecast. "The pandemic has expanded growth well beyond the normal level, but as growth has largely been driven by new gamers and streamers entering the market, this has widened Corsair's user-base for the long-term, in our view." Pachter, who recommends buying the stock, upped his price target at the time to $49 from $34, joining a chorus of bullish calls. Stifel analysts raised their target to $44 from $32, citing "greater confidence in our near-term fundamental outlook for the business." Investors have soured on the stock in recent weeks. Since peaking at $51.26 on Nov. 24, the shares have lost 31% of their value. WATCH : Two tech investors on 2021 IPO landscape, 2021 market outlook and more

The New York Stock Exchange welcomes executives and guests of DoorDash, Inc. (NYSE: DASH), today, Wednesday, December 9, 2020, in celebration of its Initial Public Offering.

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(This story is for CNBC PRO subscribers only.)

In a dismal year for the economy, IPOs flourished. The New York Stock Exchange had its busiest year in history for debuts. Snowflake, Airbnb and DoorDash held three of the 10 biggest offerings ever for U.S. tech companies.

After raising more than $3 billion each, they all had massive pops, further igniting controversy about the IPO process and the amount of virtually free money being handed over to Wall Street and big institutions. Airbnb and Snowflake more than doubled right away, and DoorDash closed up 86%.

The story for retail investors, who weren't able to get in at the IPO price, has been very different. They were locked out of the immediate gains and have little to show for buying afterwards.