How did the US IPO market perform in 2020?
Global financial markets were rocked by the coronavirus pandemic in 2020 but it was a solid year for US initial public offerings (IPOs). A total of 218 companies went public last year, 36% more than in 2019, while the amount they raised jumped 69% to $78.2 billion, according to SEC figures. In fact, it was the best year on record for the IPO market since 2014.
Larger companies listed in 2020 than in previous years and they raised much larger sums, with over 20 stocks raising over $1 billion. That included the likes of the DoorDash and AirBnB IPOs.
Healthcare and technology companies accounted for three-quarters of all the IPOs last year, according to Renaissance Capital. The fact these sectors have been insulated or even benefited from the pandemic means most IPOs have performed strongly after listing and significantly outperformed the wider market.
That is all the more impressive considering US stock markets managed to recover their pandemic-induced losses in the second half of the year to hit new all-time highs. All-in-all, the S&P 500 booked a 16% gain in 2020. However, Renaissance Capital’s IPO index – which tracks newly-listed US equities – soared 110%, giving investors plenty of reason to watch out for new IPOs in 2021.
What is the outlook for the US IPO market in 2021?
The IPO pipeline for 2021 is looking strong with a number of companies having filed paperwork late last year. We have already seen several companies pull the trigger since the start of the year, such as buy now, pay later firm Affirm, pet supply company Petco, fashion retailer Poshmark and mobile gaming outfit Playtika. All of them have booked large gains since listing, with Affirm and Poshmark managing to more than double in price already.
Tech stocks are likely to dominate the IPO market again this year. Most of the companies touted to go public are tech stocks in one way or another, with a raft of fintech, ecommerce and gaming companies due to list.
Notably, more companies are expected to bypass the traditional IPO process this year. Direct listings remain an option for some, but it is SPACs – special purpose acquisition vehicles – that are growing the most in popularity. SPACs are essentially shell companies with no operations that list and raise capital from investors that can be used to buy another company in order to take it public quicker and at a cheaper cost.
Top US IPOs in 2021
Below is a list of the most notable US IPOs that could happen in 2021. You can also look at the Top UK IPOs in 2021 to find out what to expect from the UK IPO market this year.
Coinbase has become one of the most prominent names in the cryptocurrency space. Having started off as a gateway for people to buy bitcoin back in 2012, it has now become one of the larger cryptocurrency exchanges on the market.
The company confirmed it had filed for an IPO in December but didn’t shed any light on how it would be structured or valued.
More businesses with fortunes tied to cryptocurrency and blockchain have gone public in recent years as the mainstream market becomes more accustomed to the space but Coinbase’s IPO would dwarf anything seen before. It was valued at $8 billion in 2018 and it is unclear what value it would seek under an IPO.
Fortune reports it could be as high as an eye-watering $75 billion. But one reason the valuation range is so wide is because Coinbase’s performance is largely tied to that of bitcoin and other cryptocurrencies. Trading volumes are key for its commission and the recent rally in prices will have boosted volumes. However, there will be concerns that Coinbase could prove to be as volatile as the cryptocurrencies it deals in.
US giant Walmart owns the bulk of Indian ecommerce company Flipkart after buying a majority stake in the company for $16 billion in 2018 and is eyeing a spin-off this year. Reports suggest Flipkart could earn a valuation of around $40 billion, compared to the $25 billion valuation at its last funding round in July 2020. Walmart said an IPO was always the goal for Flipkart from the day it purchased the company.
Flipkart is the biggest ecommerce player in India and counts Microsoft and Tencent among its other minority shareholders. Like Amazon, Flipkart is a marketplace that connects sellers and buyers and uses this highly cash-generative model to invest in a slew of other disruptive companies – from fashion to tech - to fuel further growth.
Instacart is poised to launch an IPO this year to capitalise on the accelerated growth in online grocery deliveries. Reuters reported in November that the company had appointed Goldman Sachs to prepare for a listing with a valuation of around $30 billion. That would be a significant jump from the $17.7 billion valuation it achieved in its most recent funding round in late 2020.
Instacart focuses on delivering groceries ordered through its app but it has expanded its offering to the non-food sector and now delivers products from the likes of Walmart. Competition with Uber and other delivery firms will intensify as companies stretch into new areas.
Roblox is set to be one of many gaming stocks to go public this year. Roblox is a platform that allows people to create digital worlds and then play, socialise or learn within them. That means content is human-generated and ever-expanding, blending a social network with a gaming platform.
It has experienced phenomenal growth in recent years with over 36 million daily users at present compared to just 17.6 million in 2019 and 12 million in 2018. In turn, revenue in the last nine months of 2020 amounted to $588.7 million compared to $349.9 million the year before – outstripping the annual $488.2 million of sales made in 2019.
Roblox is still loss-making but is highly cash-generative, with free cashflow of $292.6 million in the nine-month period compared to just $6 million the year before.
Notably, Bloomberg reported that Roblox could look to join the markets through a direct listing than a traditional IPO. Late last year, reports suggested Roblox was targeting an $8 billion valuation but it recently conducted a fundraising that valued the business at a staggering $29.5 billion – putting it on course to be one of this year’s biggest new listings.
Robinhood has drawn a lot of attention since being founded in 2013. It has made a name for itself by being an online broker that allows over 13 million customers to trade commission-free. Reuters reported in December that Robinhood had hired Goldman Sachs to prepare for an IPO in 2021, with a valuation touted at around $20 billion. The company was worth $11.7 billion at its last private fundraising last September.
The biggest barrier to Robinhood launching an IPO will be regulatory scrutiny, with the company having been accused of facilitating risky trading. It was accused of using ‘aggressive tactics to attract inexperienced investors’ by the state of Massachusetts in December.
The fact it is also unprofitable and runs a very different model to larger brokers will also raise eyebrows. For example, the SEC charged the company with ‘misleading customers about revenue sources’ in late 2020. Still, it does have a large customer base that it would undoubtedly look to tap-into during any IPO.
Checkout.com is a likely candidate to IPO in 2021 after its founder and chief executive Guillaume Pousaz told CNBC that the company would definitely list at some point, although he described it as a long-term goal and said there was no pressure to conduct an IPO quickly.
The fintech company operates a platform that integrates a slew of services, spanning electronic payments, analytics and fraud management tools, for its customers to use. The company is thought to have been profitable for several years and, following a fundraising in early 2021, the company boasts a valuation of $15 billion – up from just $5.5 billion seven months ago.
‘We’re going to be a public company,’ Pousaz said. ‘There’s no other alternative at this point, given the size of the business.”
Lucid Motors IPO
Lucid Motors is another car company that will be on the radar in 2021, with Bloomberg reporting the firm is also looking to merge with a SPAC to go public quicker at a valuation of up to $15 billion.
Lucid Motors finds itself in the same position as Tesla not too long ago. Orders are racking-up and attention is turning to sales, with the company hoping to start delivering its new sedan, the Lucid Air, to US customers in the second quarter of this year. Also like Tesla, it is currently serving the luxury end of the market with prices starting at just under $70,000, but is introducing lower-cost models later on.
Chime is considering an IPO in 2021 but is in no rush to go public. The company provides banking services on mobiles and makes most of its money through transaction fees when people pay for stuff using their cards. It is a transaction-based business, providing steady revenues, but Chime describes itself ‘more like a consumer software company than a bank’.
Chime’s last fundraising round in September was reported to value the firm at $14.5 billion, a staggering rise from just $1.5 billion 18 months earlier. It has seen an influx of customers who are forced to manage their finances and shop online during the pandemic.
UiPath filed for an IPO in December, with reports it could look to list in the first half of the year. UiPath is a robotics company that focuses on automating mundane tasks so humans can do more pressing work, securing revenue from long-term subscribers to its software.
CNBC reported the company has annual revenue of around $360 million and counts the likes of Amazon and Verizon among its 6,000-plus customers. It is unclear what valuation it could aim for through an IPO, but its last fundraising round valued the business at $10.2 billion.
Payments company Marqeta hired banks in November to prepare a $10 billion IPO in 2021, according to Bloomberg, although it has been touted to list for some time. The company offers digital tools for card issuers and counts the likes of Uber as customers and Mastercard among its major partners.
Marqeta’s last funding round valued the business at around $4.3 billion after experiencing strong growth, with revenue reportedly doubling in 2019 to around $300 million.
Databricks was touted to launch an IPO in 2021 last October, when it reportedly opened talks with banks about preparing a listing. Databricks was founded by the creators of Apache Spark, Delta Lake and MLflow and operates a unified platform that companies like Microsoft and Shell use for massive-scale data analytics and engineering. Ultimately, it is about processing and managing data to provide the insights that companies need to function better.
Databricks was last valued at $6.2 billion but is expected to demand a considerably higher valuation under any IPO. A Databricks listing would fall into the same pool as the Snowflake IPO that made waves last year, when its shares doubled in value on the first day of trading.
GitLab was set to go public in 2020 but delayed those plans to make an IPO this year highly likely. The company postponed plans as the economy was rattled by the pandemic, but it is clearly still committed considering it still has a webpage titled ‘being a public company’ outlining the reasons why it needs to list.
The platform helps developers share and create code and software together, competing with GitHub that was bought by Microsoft for $7.5 billion in 2018. GitLab most recently earned a valuation of $6 billion but is thought to be eyeing a much higher valuation through any IPO. The firm benefits from generating recurring revenue from long-term subscriptions, which is thought to have reached an annual rate of over $100 million.
Social Finance, better known as SoFi, is set to list in early 2021 by merging with listed entity Social Capital Hedosophia Holdings Corp V, according to CNBC, at a valuation of over $6 billion. The company’s core activities revolve around refinancing loans and mortgages, but it has gradually expanded into other areas of finance such as investments and debt plans. It has over $50 billion in funded loans on its books and over 1 million members.
In a rare event for a UK company, electric vehicle maker Arrival is touted to go public in the US as a way to drive its expansion. The company makes electric buses and vans and has already garnered attention from big companies like Amazon, which has ordered 10,000 vans to make its fleet go green. Arrival has signed contracts worth a total of $1.2 billion.
Arrival is not expected to conduct a traditional IPO but by merging with what is known as a blank-cheque company that is already listed, allowing it to quickly go public with less hassle. Business Insider reported it could be worth $5.4 billion upon listing, having been valued at $3 billion after its latest fundraising.
Arrival will undoubtedly attract attention as investors look for new opportunities that can replicate the success of Tesla. However, it will also face the same challenges as Tesla, which was under pressure to maintain growth whilst it was loss-making and then pushed to quickly turn profitable by investors when cars started being delivered.
Coursera, which provides online courses to individuals and organisations, is considering launching an IPO, according to Bloomberg. The company works with universities and companies, such as Imperial College London and Google, to provide online learning and degrees. It also offers training to companies looking to improve their workforce.
The company was last valued at $2.6 billion in July 2020 and is reported to be eyeing a valuation of $5 billion upon listing.
Nextdoor is another firm that could look to capitalise on higher growth during the pandemic. The company runs what it calls ‘neighbourhood hubs’ that allow local people to safely exchange goods, services and information. It makes money through ads and by allowing businesses to offer local deals to certain areas.
The number of people using the app and the level of engagement reportedly surged when the US first went into lockdown last year as people’s lives became more local. Bloomberg reported Nextdoor could seek a valuation of between $4 billion to $5 billion compared to the $2.1 billion valuation it earned in 2019.
The main challenge facing Nextdoor is rising competition from the big boys, with Facebook reportedly working on a local social network named Neighbourhoods that TechCrunch writer Ingrid Lunden described as a ‘Nextdoor clone’.
Ascensus is reported to be considering an IPO in the middle of 2021 that could target a valuation of around $3 billion, according to Reuters last October. The company, which offers and manages savings accounts and other services by partnering with the public and private sector, is thought to have over $327 billion of assets under management and handle the savings of over 12 million Americans.
AppLovin sells technology that helps businesses grow their mobile apps, using machine learning and predictive algorithms to match people to apps to push mass uptake whilst providing a personalised experience. Reuters reported in October that the firm could look to list in the first half of this year after hiring banks to prepare an IPO.
AppLovin has a large presence in the gaming market and has said it is aiming to be a consolidator in a highly fragmented market. The fact it has been profitable since it was founded in 2012 will be welcomed by markets, with reports it generated $1.5 billion in revenue in 2020.
The fact it was valued at $2 billion in 2018 suggests it would earn a much larger valuation if it is almost earning that annually in revenue whilst also turning a profit.
ThoughtSpot is scheduled to launch an IPO after cofounder and executive chairman Ajeet Singh told Forbes last September that a listing was on the cards within 12 months. The company’s platform acts as an internal search engine for employees to quickly sift through internal data. Naturally, its services have become more popular as people shift to remote working. Reports suggest revenue more than doubled to over $100 million annual run-rate in 2019 and that may have accelerated further during the pandemic in 2020.
The company’s last valuation was $1.95 billion back in August 2019 and its chief executive has said he hopes to emulate the growth delivered by other tech companies such as Google and Salesforce after they listed.
Another likely IPO candidate for 2021 is Bumble, which runs its namesake dating app centred on the woman’s experience of online dating. The company, which also owns Badoo, filed for an IPO in January and said it would use the proceeds to pay-down debt and repurchase equity from early investors.
The company had over 42 million active monthly users at the end of September but only 2.4 million of them were paying subscribers. Any listing would bring a new competitor for Match Group, which owns many leading dating brands like Tinder, OKCupid and Match.com, and intensify competition with social media companies like Facebook that have also entered the dating game in recent months.
Oscar Health IPO
Oscar Health confidentially filed for an IPO in December, according to Forbes. The health insurer, which specialises in providing Obamacare coverage, has expanded into new states and markets over recent years and it is reported to be seeing an influx of customers as people lose their jobs and health insurance during the pandemic.
The chief executive of Swedish outfit Klarna, Sebastian Siemiatkowski, told the Financial Times last August that the company is lining up an IPO in 2021 or 2022. The company provides ‘buy now, pay later’ services to shoppers on various sites, including Ikea, Nike and H&M.
The CEO said he wants to take Klarna public when the company has proven itself but also has plenty of room to grow. It said volumes rose 44% in the first half of 2020 and that revenue increased by one-third to around $517 million. Klarna was profitable until 2019, when it started to expand into the US, and there will be concerns about credit losses as global economies struggle to recover from the pandemic.
ThredUp was reported to have confidentially filed for an IPO last October but is yet to pull the trigger. Reuters reported the company was looking to raise capital to expand its online platform that allows people and companies to deal in second-hand clothes. The company describes itself as an ‘online consignment and thrift store’ and capitalises on offering big brands and luxury lines at considerably cheaper prices.
President Anthony Marino said coronavirus has posed challenges for the business but that the resale market was one of a few ‘emerging as winners’. ThredUp says the second-hand clothes market will be worth $64 billion by 2024 compared to just $28 billion in 2019.