As the IPO market starts to pick back up post-holiday season, there is optimism in the air. 2019 showed us that investors want companies that are growing and profitable. The market and investors are done with the hype and now want only financial facts.
Whether it's simply optimism or reality, there are a lot of people talking about how 2020 could become one of the largest IPO years yet. CB Insights has said that there are 403 unicorn companies worth $1.3 trillion that are expected to go public in 2020.
Paul Condra, a lead analyst at PitchBook, had this to say about 2019’s IPO market:
2019 was an exceptional year as several highly valued but unprofitable companies went public, or at least tried to go public, and were met with relatively dismal performance by public investors. On the other hand, smaller software and tech companies with easier to understand business models and clearer paths to profitability did quite well. Looking forward to this year, I expect successful IPOs will again fall into this latter group.
In 2019, IPOs raised around $50 billion. There was one IPO that really stood out: Beyond Meat (NASDAQ: BYND). Not a lot of people were aware of the company or even expected it to do as well as it did. The plant-based meat alternative business went public in May 2019 with an IPO price of $25 per share. As of Monday, January 13, 2020, shares are trading around $105 per share near mid-day, just eight months after going public. Shares still have strong momentum in the market.
As I mentioned earlier, Beyond Meat wasn’t on the radar for a lot of people, but I wrote about its potential before the company went public. In 2020, we expect more IPOs to perform similarly or even better than Beyond Meat. That’s why I want to discuss three potential IPOs to keep an eye out for.
The home-sharing and hotel platform lets customers find a home away from home when they are traveling. The company has been disrupting the hotel business for the last decade. In December, it was reported that the company’s sales reached $1 billion in the second quarter. It's estimated that its 2019 annual sales could come in at around $3.5 billion to $4 billion.
The company is valued at around $35 billion and has gained the interest of investors because it has reported an operating profit for two consecutive years. According to Reuters, Airbnb has over 7 million listings in about 100,000 cities around the world. Airbnb is one of this year's most anticipated IPOs. However, the company has gone into the red because of slowing growth and its acquisitions. This will be a concern for investors. As Airbnb gets closer to an expected public offering date and releases its prospectus, there will be even more of a debate about the potential of the company and if it’ll be worthy of investment.
Airbnb is expected to set the tone for the IPO market for this year.
If you’re not familiar with the company, Credit Karma is best known for its free credit checks and other financial services which are clear, concise, and very informational. It’s a resource for people interested in improving and maintaining their credit scores. The company makes its money from an advertising-led model which gives personalized recommendations for financial products like credit cards. Credit Karma receives a fee from the institution if a customer signs up. In 2018, the company was valued at $4 billion. It hasn’t outlined any details about going public, but if a successful IPO market emerges, you can expect the company to seriously consider a 2020 public offering.
Olo provides software for food-ordering services. Its name is derived from “online ordering.” It sells its online ordering software to more than 300 restaurants like Applebees, Five Guys, California Pizza Kitchen, Wingstop, and The Cheesecake Factory. Olo has also partnered with DoorDash and Postmates — two companies with potential public offerings. Public offerings from all three companies this year would pave the way for the hi-tech food delivery companies. Olo aims to use its software to benefit restaurants instead of cutting them out altogether.
Last year, Olo announced it would be working with Alphabet’s Google to allow customers to order directly from restaurants through Google searches, proving further that Olo is interested in becoming a better resource to restaurants.
Olo isn't unicorn status yet but it has been able to raise around $53 million in total funding. It could potentially raise $300 million from its IPO, putting the company at a $1 billion valuation.