The market for initial public offerings (IPOs) appears to be heating up again following a strong performance in 2018, despite the year ending on a somewhat downtrodden note. Approximately 190 companies made their market debut last year and raised proceeds of $47 billion, up from 160 companies that raised roughly $35.6 billion in 2017. While the frenzy peaked with multiple billion-dollar offerings like Tencent Music Entertainment Group (TME), the S&P 500’s 14% plunge in Q4 enticed many companies to delay their debuts to 2019.
Technology IPOs were particularly stellar in 2018. Of all 11 sectors tracked by IPO research firm Renaissance Capital, tech had the second-highest number of IPOs with 52, lagging just behind healthcare’s 76 in 2018. However, the funds raised from tech offerings came to $18.3 billion last year, more than doubling the $9.1 billion generated from healthcare companies.
With the stock market having just posted its ninth weekly gain in a row, more and more tech companies are coming out of the woodwork to formally file for listings. That’s why this past week was among the busiest weeks for IPO news in months.
Here’s a recap of all the big names set to debut this year – and what investors should know leading up to their offerings…
The social media company confidentially filed for an IPO with the Securities and Exchange Commission (SEC) this past week set to value the company at $12 billion. Rumors of a filing have been circulated since December and January when reports estimated that the deal could raise about $1.5 billion. Underwriters for the offering include heavy-hitting Wall Street banks like Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM), which are tentatively eyeing a debut sometime in late June.
Pinterest’s IPO filing comes at a time of strong growth for the company. In the three years between September 2015 and September 2018, the site’s monthly active users (MAUs) more than doubled from 100 million to 250 million. It also raked in about $700 million in revenue last year thanks to an enormous boost from its ad business. While that doesn’t hold a candle to other social media firms – Facebook Inc. (FB), for example, boasted pre-IPO revenue of $3.7 billion in 2011 – Pinterest still maintains exceptional growth for a company that’s less than a decade old.
Lyft
On Feb. 20, The Wall Street Journal reported that the ride-hailing company, which already filed for an IPO in October with JPMorgan leading the underwriting team, may make more details of the offering public next week. As of now, investors know that Lyft has raised $4.9 billion in private funding and could achieve a public valuation exceeding $15 billion. The firm also plans to list on the Nasdaq exchange, with many analysts predicting the company to list shares as soon as late March.
The age-old question remains whether or not Lyft will beat its much-larger rival Uber to market. Uber dwarfs Lyft in nearly every metric, with the former raising $24.2 billion in funding at an eventual public valuation of $120 billion. That would easily make the Uber IPO one of the largest market debuts of the decade. However, both have been hemorrhaging money for years now, which levels the playing field a bit for financial health-oriented investors. Lyft has also reaped benefits from Uber’s series of controversies, including last year’s “#DeleteUber” campaign and the company’s tarnished reputation under founder and former CEO Travis Kalanick.
Uber
Despite the bumps in the road – no pun intended – from a PR perspective, the ride-hailing firm lords over not just peers like Lyft but also the broader universe of tech startups. For years, Uber has been the most valuable “unicorn” – a term for private companies with valuations exceeding $1 billion – on the planet. As of October, Uber’s private valuation sits at $72 billion, far ahead of Airbnb’s $31 billion and SpaceX’s $24.7 billion.
However, Uber’s jaw-dropping valuations – including its $72 billion in the private sector and estimated $120 billion as a public company – should always be taken with a grain of salt. If past tech IPOs are any indication, these massive valuations tend to decline, often dramatically, by the time the actual market debut rolls around. For example, Snap Inc. (SNAP) boasted a valuation as large as $40 billion five months before its March 2017 IPO. By the time the stock listed, the valuation was cut in half to about $20 billion.
Slack
Slack, which develops the work collaboration tool of the same name, remains the most unique of the foursome in that it’s set to follow the footsteps of last year’s highly successful Spotify Technology SA (SPOT) debut with a direct listing.
Direct listings are starting to surge in popularity, and many banks view them as anathema to the underwriting business that earns them billions of dollars in fees. These listings skew from the traditional IPO process in that the firm doesn’t issue new shares or raise funds through the process of making a market debut. Instead, direct listings let existing shareholders sell their own shares to the public, which saves the company underwriting fees and helps cut down on costs. This tremendously helps tech companies in particular since many are unprofitable at the time they go public.
The basis of Slack’s investor appeal seems to stem from the absence of large competitors compared to the saturated ride-hailing market. Slack has become the dominant workplace communication tool, edging out Atlassian Corporation Plc. (TEAM) and its now retired HipChat and Stride products. With a $7.1 billion private valuation and 8 million daily active users (DAUs), Slack boasts stable growth and a stable product. While no date has been announced, it’s set to be one of the more underrated tech IPOs to keep an eye on this year.