Will the private markets love affair with a slew of unicorns mature into successful IPO marriages in 2019?
Index companies, Lyft and Pinterest appear to be the first to the altar with public offerings slated for March and June (subject to change), respectively. And waiting in the wings are Uber, Airbnb, Zoom, Postmates and Peloton. These high-profile private companies are about to give Wall Street a new valuation test as 2019 is shaping up to be a potentially big year for delivery and mobility stocks.
According to the Wall Street journal, “Bankers and others predict that 2019 could be the busiest year ever for IPOs by the amount of money raised. The current high-water mark is 1999, near the height of the dot-com bubble, when companies raised $107.9 billion going public in the U.S., according to Dealogic. Last year’s total was barely half that, at $60.8 billion, up from $49.4 billion in 2017.”
In a January 2, 2019 MarketWatch article, “Stampede of the ‘decacorns’: Here are the big-name startups preparing for 2019 IPOs,’ Emily Bary sums up the 2019 IPO environment quite succinctly:
“Current broad market activity suggests that, in terms of overall IPO volume, 2019 likely won’t be on par with 2018. There have been 214 IPOs so far this year, according to data from PricewaterhouseCoopers, up from 176 in 2017 but down from 268 in 2014, the recent peak.”
The companies going public today tend to be older than those that held IPOs in the dot-com bubble, meaning they have more mature business models and raise more money. ‘Companies that have shown a pathway to profitability in light of slowing growth have been very well-received by institutional investors,’ even if they’re still in the red at the time of their offerings, said Rohit Kulkarni, the head of research at pre-IPO marketplace SharesPost.
Regardless of whether you plan to invest in these companies, the IPO process presents an opportunity to learn more about major brands that have thus far provided limited information about their financials. ‘These are companies generating billions in revenue, so it will be interesting to see what’s under the hood,’ said Adam Augusiak-Boro, a senior associate at EquityZen, an online marketplace for pre-IPO shares.”
However, the IPO market can be a fickle partner. Volatility in major stock indexes are always a concern and could make the road to an IPO a little bumpy, even for those companies at the top of the ladder. Case in point was the sharp decline in equities in December 2018 which had bankers scrambling to help companies file earlier in 2019 on concerns that the risk that markets get even less accommodating later, according to J.P. Morgan’s global chairman of investment banking Jennifer Nason.
The recent jolts experienced by the markets in December 2018 were a warning shot across the bow that the window of opportunity to go public may be a lot narrower than previously thought. There is some concern that the recent U.S. decade-long economic expansion may not go on much longer and those concerns are translating into some skepticism that companies will have a harder time persuading investors to finance the enormous valuations seen in the last year or so.
While there is concern about whether the market will hold up in the next two or three years, more than a few experts are optimistic that the bigger players like Uber, Lyft, Airbnb and Pinterest have positioned themselves to weather any market upheaval that might arise.
It is notable that several of these companies are acting sooner rather than later regarding the timing of their public offerings.
Prime Unicorn Index companies Lyft and Uber both announced filings in early December 2018 within a day of each other, setting up the race to see which company made it to IPO offering first. As everyone is now well aware Lyft won that race and is set to embark on an IPO roadshow on March 18th.
However, according to the Washington Post, Lyft’s filing and Uber’s pending filing, “highlights the unprecedented risks facing ride-hailing giants as they go public — largely because of their complicated relationship with regulators. Lyft’s IPO will be a test public investors’ appetite for these new risks.”
Stay tuned for additional blog articles in March as we focus on the Prime Unicorn Index companies Lyft, Uber, Airbnb, Pinterest, Peloton, Zoom and Postmates.