Image shows a picture of Lindsey Bell, Ally Invest’s chief markets & money strategist. The title reads “Rivian and the Rise of Brand IPOs.”

Your favorite brands are having a moment in the stock market.

The list of recent IPOs reads like a millennial’s shopping list: Arhaus, Allbirds, Portillo’s and Rent the Runway are just a few names that have gone public in the last month.

Brands have even flipped the script on markets, testing the waters with IPOs even before establishing much of a business. On Wednesday, Rivian raised $12 billion in one of the biggest IPOs of the decade. Not bad for an electric vehicle company that has no revenue and just started delivering trucks this fall.

It’s never been easier to buy into popular brands, and they’re vying for your investing dollars.

Chart titled The Year of the IPO maps out consumers' favorite brands going public in 2021 each quarter. First Quarter: Bumble ($2.15 billion); Affirm ($1.2 billion); Petco ($864 million); Coursera ($519 million); Cricut ($306 million); Poshmark ($227 million); ThredUp ($168 million); and JoAnn ($131 million). Second Quarter: The Honest Company ($412 million). Third Quarter: Robinhood ($2.09 billion); Olaplex ($1.55 billion); Freshworks ($1.03 billion); Toast ($869 million); Duolingo ($521 million); Krispy Kreme ($520 million); Dutch Brothers ($484 million); Traeger ($424 million); and Weber ($250 million). Fourth Quarter: Gitlab ($800 million); Portillo's ($405 million); Rent the Runway ($357 million); Allbirds ($302 million); VitaCoco ($172 million); and Arhaus ($167 million). Source: Ally Invest, Bloomberg

The Power of the Brand

Name recognition has always been a powerful reason to invest. It makes sense: If a company has a popular product, the demand could translate into higher profits and share prices.

But these days, brand power seems to be the main ingredient for market success, especially for newer companies on the block. In an Ally survey of consumers, 46% said reputation is the most important factor for them when evaluating an IPO. Making money was a secondary focus, with the value of the company at IPO and the potential for return on the initial investment falling behind reputation.

They say a good reputation is your most valuable asset. This held true for consumers evaluating factors in an IPO investment opportunity. Reputation ranked first at 46%, surpassing the value of the company (41%) and long-term return on investment (37%). Source: Ally Consumer Research

Many of these newer IPOs aren’t exactly re-inventing the wheel, either. Olaplex is a hair-care company. Dutch Bros is a chain of coffee shops. Bumble is a dating app.

But what do they all have in common? Brand loyalty. The rise of social media and influencer marketing has sparked a wave of consumerism. People support brands recommended by their favorite influencers through thick and thin, and coincidentally, there is increased interest in the stock market by newer entrants to investing. Investing in a company that makes a product that you are familiar with is a simple way to get started with investing.

Consumer companies are capitalizing on these trends, especially this year. About 47 U.S.-based consumer companies have gone public year-to-date through November 5, poised for the busiest year since at least 1990.

Chart labeled A Big Year for Your Favorite Brands tracks the number of Consumer Discretionary and Consumer Staples IPOs. 2021 is at 47, the highest since the 1990s. Source: Ally Invest, Bloomberg

Some brands, like Warby Parker, have even elected to bypass the traditional hype, relying on their brand power to sell shares directly to investors (including retail investors) instead of going on a roadshow with Wall Street’s biggest banks.

There are other factors at work, too. Many brands that have gone public recently are several years old, so an IPO was the natural next step in their journey. Consumer-facing businesses have also gone through their own wave of innovation and opportunity as they’ve had to re-think their business models during the pandemic. And it’s been a big year for IPOs in general, with the stock market poised for a strong year of gains.

Rivian: Moment or Movement?

Rivian’s debut this week shed light on the power of a brand in an innovative, high growth industry. Rivian is increasingly becoming a household name and is now one of the most valuable truck makers on the stock market, even though it’s an up-and-coming electric vehicle company that lost $1 billion last year. No doubt, the excitement around electric vehicles has aided in the success of Rivian’s IPO. Investors now have another way to invest in the hot electric vehicle market. That combined with its brand support is fueling an early pop in its stock price and valuation.

It’s been a favorable environment for many brands and investors. 2021 is set to have the most common-stock IPOs since 2000, with consumer IPOs accounting for 14% of them. But for some people, the enthusiasm around IPOs could signal a market reckoning. After all, questionable IPOs have preceded market tops in the past, like Pets.com which also was a company that did not have revenue prior to debuting a month before the dot-com bubble burst. Rivian’s IPO also happened at a time when the market’s consistent winning streak has put some investors on alert. The S&P 500 just capped a historic streak, rising 17 out of 19 days for the first time since 1971.

Popular brands don’t always translate to successful stocks, either. Companies like Fitbit and Blue Apron have flamed out in dramatic fashion after highly touted IPOs. Reality has started to hit hard for some brands, especially this week as earnings were reported. On Thursday, Bumble shares fell 19% on weaker-than-expected growth in paying users. Poshmark dropped 30% on Wednesday after missing revenue expectations and guidance disappointed Wall Street.

The Bottom Line

You’re getting opportunities to buy in at the ground floor of your favorite brands, and consumer IPOs show no signs of slowing down. There are more brands rumored in the next few months, like Sweetgreen, Instacart and Discord.

But is brand loyalty the best move for your portfolio? That’s a complicated question.

Investing in what you know isn’t a bad place to start. But if you’re investing in a company’s story, you should fully understand their plans for future growth. Brands with compelling stories can turn out to be good investments, but only if they can turn the story into profits. And these days, people are paying up for popular brands and new ideas with an “innovation premium” for the renaissance of tech and crypto. But that could also lead to a reality check if the market turns.

In the end, it’s easy to get swept up in a brand but difficult to tell which IPOs will be booms or busts. Take into consideration how much time, uncertainty and volatility you can stomach as you watch a brand evolve into a bigger business.

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Callie Cox, senior investment strategist, contributed to this article.

Speech bubble icon next to text "Expert Take"

Headshot of Lindsey BellLindsey Bell, Ally’s chief markets & money strategist, is an award-winning investment professional with a passion for personal finance and more than 17 years of Wall Street experience. Bell’s unique ability to connect the dots between data and real life and craft bite-sized money ideas that people can use and apply stems from her deep background as an analyst, researcher and portfolio manager at organizations including J.P. Morgan and Deutsche Bank. She is known for demonstrating why and how an understanding of all things money improves a person’s finances and overall well-being. An ongoing CNBC contributor, Bell empowers consumers and investors across all walks of life and frequently shares her insights with the Wall Street Journal, Barron’s, Kiplinger’s, Forbes and Business Insider. She also serves on the board of Better Investing, a non-profit focused on investment education.

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