IPO activity has remained buoyant through the first half of 2021 and will likely continue
Q2 2021 hedge fund letters, conferences and more
Despite the novel coronavirus pandemic, last year saw several highly anticipated initial public offerings, or IPOs. According to FactSet data, the volume of IPOs more than doubled from 2019, with 494 IPOs raising a combined $174 billion, setting new records on both counts.
Last year saw the debut of Airbnb (NASDAQ:ABNB), Palantir (NYSE:PLTR), Snowflake (NYSE:SNOW), DoorDash (NYSE:DASH), and Unity Software (NYSE:U), all of whom had blockbuster listings. And this year is shaping up to be an excellent one for IPOs once again.
But there is a need for caution as well. For every company touting to be the next Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), or Tesla (NASDAQ:TSLA), several other companies will end up promising the world while losing money. That’s why you need a sound investment strategy that will help you make sense of the situation and ensure you pick a multi-bagger.
This list provides you with seven of the most anticipated upcoming IPOs to watch in the latter half of the year. They have been selected for their forward-looking operational models and unicorn-level valuations. Ultimately, every company has its growth stories and prospects. But these enterprises offer the best of both worlds. Hence, they are excellent prospective picks for your portfolio:
- Instacart
- Nextdoor
- Stripe
- The Fresh Market
- NerdWallet
- Discord
- Ascensus
IPOs to Watch: Instacart
Many feel Instacart missed the boat by not going public before DoorDash, an online food ordering and food delivery platform that saw enthusiastic investor demand, going public at a $32 billion valuation before soaring on its first day of trading to a valuation of roughly $70 billion.
But there are plenty of positives with Instacart that make it an IPO I would watch out for. Earlier this year, the grocery delivery app closed on a $265 million funding round that sent the grocery delivery app’s value to $39 billion.
The pandemic was a boon for the company’s business. Consumer demand for delivery and pickup services skyrocketed due to the nature of the crisis — Instacart’s order volumes have surged as much as 500% this year.
The company has reportedly tapped Goldman Sachs (NYSE:GS) to lead its initial public offering, although we do not have a definite timeline for the listing as of yet.
Nextdoor
Neighborhood-focused social media and news app Nextdoor is tight-lipped regarding how it will go public. But last month, news broke that the company will go public through a reverse merger with a special purpose acquisition company. The deal is worth $4.3 billion.
Nextdoor’s app is interesting. It allows users to organize events, alert neighbors of danger, and share useful information. Overall, Nextdoor serves over 275,000 neighborhoods around the world and in nearly 1-in-3 U.S. households.
It achieved a valuation of $2.2 billion in its last financing round, which took place in September 2019. In total, the company has raised $447.9 million.
San Francisco-based Nextdoor is led by a very capable C-suite, headed by former Square (NYSE:SQ) CFO Sarah Friar, who is trying to aggressively expand the platform into new areas into new territories while continuing to allocate capital to both small businesses and in its proprietary advertising technology to support its monetization and revenue streams.
Nextdoor’s merger with Khosla Ventures Acquisition Co II (NASDAQ:KVSB) is expected to close in the fourth quarter. The emerging company will trade under the ticker symbol “KIND.”
IPOs to Watch: Stripe
Last year, reports emerged of preliminary discussions between billionaire investor Bill Ackman and the payments processing software company Stripe that would help the latter go public through a merger with Ackman’s blank-check company.
However, those talks did not pan out. But that didn’t stop Stripe’s momentum. In March, it raised $600 million, leading to a $95 billion valuation, approximately triple its $36 billion price tag 11 months earlier. At this point, Stripe doesn’t need to go public. Even if it holds off listing, it will remain a sought-after private company for years to come.
One thing is for sure; it is unlikely the company, founded by Irish brothers Patrick and John Collison, will take the SPAC route. At close to $100 billion, it just isn’t viable as a SPAC target anymore. But watch out for the IPO. This is a company with an excellent future.
The Fresh Market
The Fresh Market is gearing up for its second IPO.
Founded in 1982, the organic grocer had debuted on public markets through a $290 million IPO in November 2010. However, in March 2016, the company inked an agreement with private equity giant Apollo Global Management (NYSE:APO) for a $1.36 billion cash buyout.
During the intervening period, the grocer tried unsuccessfully to compete with the likes of Kroger (NYSE:KR) and Whole Foods. But a lot has changed since then. For one thing, the company is a much leaner enterprise, operating 159 stores in 22 states, down from 186 stores in 27 states back in 2016.
Credit rating agency Moody’s said the grocer managed to increase sales by an estimated 20% in 2020 due to investments in price, perishables and expanding home delivery and pickup service availability. The agency estimates the grocer had $187 million in unrestricted cash as of late October. And it will be cash-flow positive for the remainder of this year.
Although it’s in a fiercely competitive industry with low margins, it has shown remarkable growth and resilience in years since being taken private by the private equity arm of Apollo Global Management.
IPOs to Watch: NerdWallet
In March, NerdWallet, the owner of a financial advice website, reportedly filed paperwork for an IPO, according to a Reuters report.
San Francisco-based NerdWallet has hired a group of investment banks, led by Morgan Stanley (NYSE:MS), to arrange the IPO, with plans to list before the end of the year, per the report.
Its personal finance website and mobile phone app generate over $150 million in annual revenues across more than 100 million users. NerdWallet’s strategy has been to grow through aggressive mergers and acquisitions (M&A) activity.
Last year, for example, the company purchased New York City-based Fundera, which created a marketplace where small businesses could find loans. It was NerdWallet’s second purchase of 2020, having previously acquired U.K.-based Know Your Money.
While we do not have a firm date regarding when the IPO will happen, it will still be a notable one, considering the asset-light nature of the company and phenomenal user growth since it was founded in 2009 by former hedge fund executive Tim Chen and Jake Gibson, a former trader at JPMorgan Chase (NYSE:JPM).
Discord
Discord is a VoIP, instant messaging and digital distribution platform that allows users to communicate with voice calls, video calls, text messaging, media and files in either private chats or communities called “servers.”
The concept of Discord came from Jason Citron and Stanislav Vishnevskiy. The duo created online games and had to have regular discussions with their remote developer teams. Unfortunately, the comm systems they evaluated didn’t have the features they needed, so they built their own system, Discord.
In a world that is increasingly going digital, it’s no surprise Discord is doing so well. Monthly active users (MAUs) doubled in 2020 to 140 million, and revenues skyrocketed from $45 million to $130 million. These mouth-watering statistics made Microsoft (NASDAQ:MSFT) make a move for this one. The tech giant reportedly offered to purchase the company for at least $10 billion. But the deal fell through, with Discord ending talks with selling itself to Microsoft or other companies, The Wall Street Journal reported.
Microsoft doesn’t have a big consumer-facing way to interact with consumers, apart from its Xbox and Surface devices. So the deal would have been a major coup for the company. Nevertheless, Discord remains an excellent IPO prospect. Discord has reportedly decided to stay independent and consider a potential public listing to build on its success despite the pursuit of big names.
IPOs to Watch: Ascensus
The IPO for financial services company Ascensus has been a long time coming. Founded in 1980, the company provides services for the 401(k) market, 529 college funds and Health Savings Accounts (HSAs). It has more than $327 billion in assets under administration, with more than 3,700 employees and a large national footprint.
Building on its thriving business, Ascensus is heavily investing in its technology offerings and has already rolled out a new digital sales platform for representatives that automates the proposal process.
As of this writing, Ascensus has not yet announced a formal date for its IPO. However, the savings provider has tapped Barclays (NYSE:BCS) and Goldman Sachs to prepare for the stock market listing. The listing IPO of the savings services provider could value it at around $3 billion, including debt.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
Article By Faizan Farooque, InvestorPlace
