The pace of initial public offerings is expected to get off to a strong start in 2020 as debuting companies try to avoid the belly flops of IPO stocks like Uber (UBER) and Lyft (LYFT) or the crash of workspace provider WeWork.
There currently are 61 IPOs on file with the Securities and Exchange Commission. They look to raise a combined…
$10 billion, according to Renaissance Capital, a research firm and manager of the IPO (IPO) exchange-traded fund.
In addition, Renaissance estimates there are another 60 or more companies preparing for an IPO but have yet to make their plans public.
Venture capital portfolios are full of potentially strong IPO stocks that could come public this year. At the same time, high valuations for tech unicorns will likely be restrained as their offerings encounter skeptical public investors. Unicorns are companies with a valuation above $1 billion.
“Because of some of the disappointments last year, I don’t think you’ll see a large unicorn go public at unreasonable valuations this year,” Renaissance analyst Matt Kennedy said. “Investors are more discerning and less willing to overpay on a stock price.”
Uber, Lyft Valuations Plunge
Uber had a private valuation of $76 billion ahead of its IPO in May. It since has dropped to $58 billion, with Uber stock down about 24% from its IPO price. It was down 45% at one point. Lyft’s valuation now stands at $13 billion, with shares down 36% from their IPO price. Shares were down 49% at one point.
Damage to IPO stocks also came when WeWork pulled its IPO plans after being hit with intense criticism from investors about its corporate structure, business model and burgeoning losses.
“The days of the mega-tech IPOs may be behind us,” said a report from financial data company FactSet.
“Investors have grown increasingly wary of lofty valuations,” it said. “Companies will need to prove that they are well-run, have growing revenues, and will eventually turn a profit.”
One large unicorn likely to get a lot of attention if it goes public in 2020 is Airbnb. The rental listings provider has a valuation of about $31 billion.
IPO Stocks By Sector
In addition, biotech and health care companies, which last year accounted for the most IPOs, are expected to continue their momentum in 2020. Technology companies also are setting up for a good year, in terms of the number of IPOs they produce.
Technology IPOs that could emerge this year include data mining company Palantir Technologies and Didi Chuxing, known as the Uber of China. Others include food delivery companies Postmates and DoorDash, which are battling it out with Grubhub (GRUB) and the Uber Eats unit of Uber.
Analysts see Chinese companies continuing to debut in the U.S. despite a poor performance in 2019.
“We anticipate the IPO market will move full-speed ahead in the first half or two-thirds of this year,” said Jeff Zell, senior research analyst at IPO Boutique, an IPO research and advisory firm.
Analysts caution that the U.S. presidential election this year could cause the IPO market pace to slow down in the latter half of this year.
“The closer we get to the election, any kind of uncertainty in the market would have effect on the pace of IPOs,” Zell said. “But there’s a broad pipeline that includes a lot of biotech deals, unicorns and Chinese deals.”
The consumer staple sector should be active, he said. One of the largest IPOs in this sector would be Reynolds Consumer, the maker of Reynolds Wrap and other products for the kitchen. It could raise $1.5 billion in an early 2020 IPO.
Preview Of Potential IPO Stocks
Here’s a brief look at some potential IPOs in 2020.
Airbnb in September said it planned to go public in 2020. The company also said it took in more than $1 billion in revenue for the second quarter of 2019 (the latest quarter information available). But Airbnb didn’t say if it was profitable. The company also said it would be launching a multimillion-dollar marketing campaign with ads running on TV and digital platforms.
Airbnb competes against the hotel industry and other home rental services. Its competitors include Expedia (EXPE) and Booking Holdings (BKNG), formerly Priceline. Airbnb reportedly is considering a direct listing, as opposed to the traditional IPO route. Spotify Technology (SPOT) and Slack Technologies (WORK) also chose a direct listing.
Data analytics company Palantir is one of the most secretive companies in the group and has been a perennial IPO candidate for several years. Palantir reportedly had revenue of about…
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