2020 IPO season is about to get started, and if experts are to be believed, then there will be strong demand for the initial public stock offerings this year. The last two years have been very good for the IPO market, and now, the same is expected for the 2020 IPO market as well.
2020 IPO market to be strong
The presidents of the New York Stock Exchange (NYSE) and Nasdaq believe that the 2020 IPO market will be strong. Speaking on CNBC’s “Squawk Box” last week, NYSE President Stacey Cunningham said that about 30 companies have already made a filing with the SEC (Securities and Exchange Commission) and many more are in talks to register in 2020.
Nasdaq President and CEO Adena Friedman shared a similar thought. “We are having a lot of meetings, a lot of interest, a lot of companies looking to tap the public markets in the first half,” Friedman told CNBC’s “Squawk Box.”
Hedge fund giant D.E. Shaw is on a roll. Its Composite Fund, the firm's flagship fund, generated an estimated net return of around 18.5% in 2021, only slightly lagging behind the 19.4% return recorded in 2020. According to Bloomberg, the fund is up a further 20.5% for the year to the end of August. The Read More
Comparing the 2020 IPO market with that of last year, the NYSE President noted that even though the 2019 IPO market was the best since 2014, only a few companies got the attention. Last year, there were many high-profile IPOs that turned into disappointment for the investors. For instance, Uber and Lyft were in the news last year for lack of profitability.
Last year, companies such as Zoom, Lyft, SmileDirectClub, Peloton, and Beyond Meat went public on Nasdaq. On the other hand, Levi Strauss, Virgin Galantic, Uber, Pinterest, and Chewy went public on the NYSE.
Cunningham notes that investors are not just looking for growth, but profitability as well. “Right now the pipeline of prospects, IPO prospects, is very strong, very interesting,” added Friedman.
Good news for investors
Just before the start of the 2020 IPO market, there is likely good news for the investors. Casper Sleep, the online mattress retailer, said that it would raise over $182.4 million in its U.S. listing. The company, whose investors include actor Leonardo DiCaprio and rapper 50 Cent, plans to sell 9.6 million shares between $17-$19 per share.
Casper’s valuation based on the top end of its range value is at $768.2 million, which is well below its $1.1 billion valuation that it got last year in March. The good news here for the investors is that Casper adjusting its valuation is a sign that companies are aware about investor’s expectations.
“At least it’s in the ballpark of what market participants think the value should be. It suggest companies are adapting to the reaction of IPO investors to money-losing, highly-valued companies,” Kathleen Smith, Principal at Renaissance Capital, said, according to MarketWatch.
Ride-sharing companies, such as Uber and Lyft, struggled with their IPO’s last year after investors pushed back.
IPO’s to watch for
Now that we have some idea of why the 2020 IPO market would be strong, let’s see the IPO’s to watch for this year.
- Reynolds Consumer Products could be the first billion-dollar IPO of 2020. The company, which plans to raise $1.25 billion, has a strong cash flow generation and estimates that it has a presence in 95% of U.S. households.
- One Medical plans to raise $263 million from its IPO. The company operates 77 membership-based health clinics, and as of September last year had 397,000 members and 6,000 enterprise clients. One Medical is backed by Carlyle and Benchmark.
- PPD, which is a Carlyle-backed provider of drug development services, is expected to raise up to $1.62 billion in IPO next week offering 60 million shares at $24 to $27 each.
- Ant Financial Services Group, also known as Alipay, is the most valuable unicorn with a valuation of $150 billion. The company, which is backed by Alibaba, holds massive potential.
- Black Diamond Therapeutics plans to raise $151 million. The company is backed by Versant and develops small molecule, tumor-agnostic therapies.
- Arcutis Biotherapeutics, which specializes in skin treatments, plans to raise up to $132.6 million by offering 7.8 million shares at a price of $15 to $17 each. The company plans to list on Nasdaq under the ticker symbol “ARQT.”
- GitLab would surely be among the most popular IPO’s of 2020. The company has been a hub for hosting project source codes since 2011. Its client’s lists include names like McDonald’s, Goldman Sachs, Delta Air Lines and IBM. GitLab’s revenue is increasing at a rate of 143%, while its paying users doubled in 2019. The company was valued at $2.75 billion based on its latest funding round.