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2021 really rolled out the red carpet for IPOs.
2,388 firms launched initial public offerings, raising $453.3bn in total proceeds last year [1]. That marked a 64% increase in deals on 2020, and a 67% hike in funds raised.
It wasn’t just about the size and quantity of these IPOs though.
The reach and span of firms IPOing panned a much more geographically diverse area.
The number of IPO listings in the Americas shot up by 17% to 110, but EMEA (Europe, the Middle East and Africa) witnessed greater growth. The region had 189 IPOs - a 29% increase on the year prior,
Likely, that was the result of pent up demand as pandemic restrictions lifted across those regions. Low interest rates also meant those markets were seeing heightened market participation - a welcoming environment for a company considering an IPO.
Last year showed us just how wide the scope is for stock performance just after IPO.
Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk and time horizon, should inform the mix of assets you choose and whether or not IPOs belong in your portfolio.
Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to invest in stocks is a great start for a first-timer's investment decisions.
And if you are still unsure of how to pick investments, speak to a qualified financial advisor to develop your investment strategy.
2021’s largest IPO was Rivian, the electric vehicle (EV) maker. The firm secured a whopping $13.7bn when it listed on the NASDAQ last November. While its share price has since been sliced to less than half of that initial value, it’s still boasting a $51.4bn market cap.
That’s quite astonishing for a firm that delivered 11 cars in its Q3, pocketing a total revenue of $1m.
The glaring gap between Rivian’s money made and money raised sheds light on just how much demand there was for growth-centric firms last year.
Many of which came to market at a younger age than their predecessors. For instance, the average age for a 2021 Biotech IPO was five years old, compared to six years in 2020, and 10 back in 2013 [2].
The start of 2022 saw the Federal Reserve (Fed) signal interest rates would soon rise, resulting in the market selling off shares in the firms most likely to be impacted.
And when rates rise, the firms with the most vulnerable valuations are those that usually get hit the quickest and hardest. Usually, these are the ‘growth stocks’ - like Rivian with its lofty valuation and tech firms with far-off dreams of profitability. So firms looking to IPO this year will have that backdrop to contend with, and maybe less of an appetite for high valuations.
Until a company announces its intention to go public, we can’t know for sure when or if it will do so. This means everything from here on out is based on musings from the good ol’ fashioned rumour mill. That said, the companies that follow may have recently alluded to (or made business decisions which suggest) they may be going public soon. So it’s worth keeping your eyeballs on these names over the coming months.
BrewDog has a long history of crowdfunding to finance its growth. Earlier last year, 180,000 crowdfunders invested £80m into the firm, turning it into the UK’s biggest craft brewer.
But these “equity punks” as BrewDog endearingly calls them, seem to be losing their thirst lately. That’s off the back of allegations that the workplace culture is less than favourable over in BrewDog HQ.
Another red flag is its hefty valuation. BrewDog’s latest round of crowdfunding was at a £1.9bn valuation, which would be 10x its 2020 net revenues of £182m. That same year, Anheuser-Busch was trading at around 4.5x its sales, and Molson Coors was at 2.1x its revenues. So Brewdog has a lot of growth to prove.
Still, 2020 wasn’t a great year for most firms in the industry. It was especially rough for BrewDog, which doesn’t just produce and sell its beer, it also owns over 100 pubs globally.
Pandemic-related demand shifts are one thing, but the mounting negative press is something else. It makes for a far from an ideal environment for any firm trying to raise capital through the market.
Every 60 seconds, Jaguar Land Rover sells a car.
Or at least it did, back when it could get its hands on all the parts. But the UK’s biggest vehicle manufacturer has had to shift gears recently.
The ever-dreaded complaint on behalf of automotive firms continues to be ‘semiconductor shortage’, with many still reporting widespread supply issues for the vital vehicle component.
The demand is there, but they can’t produce the cars fast enough.
Tata Motors is Jaguar’s parent company, and its latest financial results are showing just that. The firm reported a net loss of £150m in its latest quarter ending last December. That meant 4.5% less revenue for the firm and a 37.6% decline in sales over at Jaguar.
Though that’s not too different from revenue figures over at Ford, with the firm reporting a 5% fall in Q3 sales.
Tata acquired Jaguar in 2008 from Ford for $2.3bn. While Tata hasn’t made any overt declarations about spinning Jaguar off, its latest set of earnings might have it re-considering a split.
Tata is sort of hinting there could be light at the end of the tunnel though. The firm described the semiconductor supply situation as “improving gradually”. Hopefully, that would lend Jaguar a helping hand.
For what it’s worth, if you’re eager to invest in Jaguar, Tata’s latest figures indicate the group is doing a better job managing the semiconductor problems anyhow. Investing in the parent group rather than one of its brands (if Jaguar does indeed go public) could be a more risk-averse choice.
Discord is a chat app with audio, video and text functionality. The firm was founded in 2015, and now has over 150m monthly active users (MAUs). Twitter, for comparison, had 211m MOAs in its Q3 - but it’s been around for over twice as long as Discord.
This is just one indicator of Discord’s flourishing growth lately, as it continues to carve out a niche in the gaming and streaming community.
The firm even managed to garner longing glances from Microsoft, which offered up $10bn in an attempt to get its hands on the app.
But Discord had loftier expectations, so Microsoft decided to look elsewhere for its gaming fix. If its Activision Blizzard acquisition goes through, the $68.7bn deal will be the biggest the industry has ever seen.
The world of gaming certainly has had a lot more eyeballs on it these days, with giants from Roblox to NetEase capturing plenty of interest.
With all that demand for its products, Discord might just stay out of the big players’ clutches. Rather than be acquired, it’s rumoured to be going public all by itself.
Databricks is a cloud-based tool for engineers. It helps firms aggregate and analyse massive swaths of data which can then be used to build predictive models.
CEO Ali Ghodsi has insisted the firm will “definitely” IPO, though he hasn’t given a clear indication as to when.
In the meantime, it’s just climbing its way up the series funding alphabet instead - hitting a Series H valuation of $38bn while raising $1.6bn last August.
As for its closest public competitor, Snowflake is often the chosen one.
The firm smashed records for the largest software IPO of all time in 2020. At a valuation of $70bn, it raised $3.4bn in its IPO. The firm’s share price managed some substantial gains in the months following its listing, though it’s now back to more or less where it started.
That could be more about the tech sector’s sell-off rather than notable changes in the industry’s overall performance though.
Or at least, that’s what Databricks is insisting. Ghodsi claims demand for Databricks’ products and services isn’t tapering, and that the firm’s revenue growth will prove its value when it IPOs.
The CEO went on to say he hasn’t seen “any sort of, ‘Hey, let’s change how we spend on data and AI and analytics” in the market.
Databricks’ 75% revenue growth to $600m for 2021 is a decent display of that interest. But with more competitors entering the data engineering space, it’ll be under increasing pressure to cultivate an inimitable product.
Or at the very least, something that keeps its customers locked into its subscription model.
In 2021, Monzo co-founder Tom Blomfield told Wired the company could go public by 2023. Then again, in that very same breath, he emphasised that Monzo’s first goal was to expand to America.
But in a change of direction, the firm withdrew its US banking licence application last October. Monzo’s now pivoting, seemingly doubling down on the UK instead.
And it’ll definitely need to prove some growth in its home market if it does indeed go public this year.
Monzo has issued several warnings of “going concern”, most recently in a 2021 audit report where it indicated “significant doubt on the group’s ability to continue”.
Monzo reported a £130m loss for the year ending in February 2021, which put it 14% more in the red than the year prior. Still, the firm had managed to grow revenues by 18% that year. And its most recent December funding round earned it £373m at a valuation of £3.4bn.
The firm has multiple income streams, including subscription fees for its business accounts, interest earned when customers hit their overdraft or take out loans, and institutional lending.
If interest rates rise this year, it should be able to garner some additional revenue through some of these segments. That might be key for its ability to better compete with the likes of Starling.
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Starling hasn’t yet said when it will IPO but CEO Anne Boden told CNBC that if they did, it would happen in London where the firm is HQ’d.
That would be some welcome news for the London Stock Exchange (LSE), which has been increasingly vocal in its desire to bring more private tech firms to the UK exchange.
Starling’s bread and butter was historically its digital banking services. But after its recent purchase of buy-to-let firm Fleet Mortgages, it’s now the first wholly digital mortgage lender on the block.
Similar to Monzo, Starling’s mortgage business would benefit from an increase in rates.
Though it’s debatably already in a better financial place than its competitor. Starling’s net loss improved to £23.3m, declining by 55% in the six months ending March 2021. Its revenues grew by 600% to £97.6m, compared to £14m the year prior.
According to Boden, that puts the firm “very much on track to post our first full year of profitability” in early 2022. And that would certainly be a good elevator pitch for the company if it does indeed go public this year.
None of Starling’s digital bank competitors have been as confident with their profitability timelines. That could be one reason why its one of Chrysalis Investment Trust’s biggest holdings. And in the meantime of Starling’s IPO, Chrysalis offers investors the ability to gain exposure to the firm in addition to other private companies like Klarna.
Last February, Reddit raised $500m in late-stage funding at a $6.5bn valuation. Then in August, it pulled in $410m more from Fidelity Investments at a $10bn valuation.
While that’s a notable increase for its valuation, it’s hard to say whether Reddit will be able to garner similar enthusiasm if it IPOs this year.
Wariness for tech valuations may trickle down into Reddit’s ability to muster a similar degree of investor interest. 2022 has so far seen declining share prices for several social media meccas (Meta, Twitter and Snapchat) which could foreshadow choppy waters ahead for Reddit.
Like its social platform cousins, Reddit makes money through ads. In its second quarter of 2021, the firm earned $100m in advertising revenue. While that was a 192% increase on the year prior, it’s still just 1% of its valuation.
Meanwhile, Meta’s ad sales were $28.6bn last year. Alphabet’s were $50bn.
Though the firm has plans to diversify its products and is looking into video and audio capabilities. These could end up offering other advertising revenue opportunities too.
Another way Reddit may monetise its platform is by tokenizing its ‘karma points’. These are accumulated by users based on their participation levels on Reddit forums. Rumour has it, Reddit will soon allow users to convert these into Ethereum-based tokens. If true, the cryptocurrency would gain around 500m new users.
One thing’s for sure, if Reddit does IPO, we can expect to see plenty of r/WallStreetBets chatter about it.
In April last year, Crunchbase reported Stripe had become America’s highest valued private company. That was off the back of raising $600m in a round of funding that valued the payment processor at $95bn.
The pandemic was a massive boost for the firm, which earns a fixed percentage and flat rate on every transaction taking place through the platform.
Every time a customer buys a product or service through Stripe, the firm earns 1.4% and 20p when a European card is used.
So as online purchases became a necessity during lockdowns, Stripe was armed and ready to ride the ecommerce wave.
Though, it’s yet another firm that, if it IPOs this year, could be harmed by an overall skepticism for highly-valued tech firms coming to market.
Speaking of Stripe, Instacart is one of its many big-ticket clients.
Instacart was a huge pandemic winner over in the Land of the Free after demand for its grocery delivery services shot up throughout Covid.
In 2019, the firm was losing $25m every month. By April of 2020, it was earning $10m in profit on a monthly basis - surpassing the revenue goals it had in sight for 2022 well in advance.
In March 2021, the firm was valued at $39bn after securing $265m in funding. But that was during a period when grocery store shopping was outright impossible for much of its market.
Instacart’s services were indispensible then, but by 2021, its grocery business was showing zero sales growth. To sustain and grow demand as an increasing number of competitors enter the grocery delivery space, Instacart may need to increasingly rely on new revenue streams.
Enter: ads. With Instacart’s advertising platform, brands can directly promote their products on the platforms. Ben & Jerry’s is said to be one of those clients driving its 2021 ad revenue of $550m. This segment will be key for the firm’s ability to distinguish itself from the likes of Deliveroo, which has seen its share price plummet since going public last year.
Impossible Foods hasn’t confirmed when, but CEO Patrick Brown described going public as “inevitable” for the firm.
According to Reuters, it would be seeking a valuation somewhere in the realm of $10bn - a hefty increase on the $4bn valuation it had back in 2020.
From a product stance, it’s one of Beyond Meat’s biggest competitors. Though Impossible Foods is surely hoping to differentiate itself once it does go public.
Beyond Meat was one of the most shorted companies on the US stock market in early January. Usually, investors hold a “short” position when they believe the price of a stock will decrease. If the price indeed drops, the investor can buy the stock at its new lower price and earn a profit.
It seems the trigger behind a turn in investment sentiment was Beyond Meat’s revenue warning issued late last year. Lower-than-anticipated third quarter sales and a big hit to its upcoming revenue guidance weren’t great news for the firm either.
Of course, even though the two businesses carry similarities, that doesn’t mean Impossible Foods will succumb to a similar fate if it does indeed IPO. After all, it isn’t just about the industry or target market that a firm is serving.
Business fundamentals matter. And when a firm issues its prospectus to go public, it’s up to investors to conduct their own research. Ultimately, your investments shouldn’t be about a firm’s mission statement - it’s about the business behind the name.
That’s especially important to keep in mind when a company goes public. Don’t forget to take a look under a firm’s hood before you give it some gas.
Sources
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