Morning Markets: The great IPO hunt is on next year. Here’s what we’re reading, and what we’re thinking.
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Despite market turmoil and a slipping global economy and Fed worries and whatever this is, hype continues to build for next year’s IPO cohort, with extra eyes fixed on the larger offerings. Media and founders and investors alike are gearing up for a big year of returns.
Which isn’t a rare December occurrence, to be fair. It’s easy to go back and find all sorts of wrong predictions on when IPOs would take place. We’ve even mocked that some. But no matter, let’s talk nuts and bolts and dreams.
Get Out While It’s Still Summer
The public market has stuttered several times in the past few years (some color here, and here), but now a decade or so into this bull market there is fresh talk about a correction, slowdown, or some sort of return to normalcy.
All and any of that would be bad for tech companies looking to go public that were last valued in more forgiving times. So, if you want to go public while avoiding a valuation haircut, sooner is looking better than later (get out while the Nasdaq is over 7,000, in other words).
Uber and Lyft, for example, filed before many expected. They both lose money at impressive rates (Uber lost $1.07 billion in Q3, Lyft about $254 million in the same period). So they are likely going out more quickly than other expected 2019 IPOs.
For companies with better financials, there’s more flexibility. Airbnb is supposed to make money on an adjusted (EBITDA) basis, which means it can better set terms for its debut apart from the market itself. (How I’m thinking about this: If you need to raise capital in your IPO, you’ll have less leverage regarding pricing than companies who don’t need to raise operating capital in their flotation.)
My view on comparative market pessimism regarding super-unprofitable companies looking to go public next year is built on public investor reaction to Snap and Domo. Sure, they are growing, but dear Lord at what cost? That sort of thing.
Our hackish Summer analogy for the public market landscape that private companies have to debut into gets potentially chillier as time goes along. That means the first half of 2019 could include more offerings than we might have expected, especially if an early debut goes strong.1
So who are we talking about? Here’s a running list of companies that are in the conversation for a 2019 debut. For the more exotic entries, I’ve included a link to coverage so you don’t think that I’ve spiked my espresso with brake fluid:
- Rackspace (Again?)
- Robinhood (Really?)
- Zoom (First I’ve heard of it, but alright)
- Bytedance (We’ll see)
You can start to do the math. If Uber goes out at $120 billion as reports hint, and Lyft can hit $30 billion, and Pinterest must be worth more than $10 billion due to its private valuation, throw in a bunch more for Didi and Bytedance, stack on what, $12 billion for a Slack IPO, add a few billion more for Postmates and even more for Zoom and Robinhood, and we’re looking at hundreds of billions of dollars in hoped-for value. It’s not too hard to see a quarter trillion or so in new market cap in the above, provided that companies get the valuation they want.
And that’s why IPOs are probably the key narrative in the financial tech world next year. Big funds will continue to close, and I suspect that venture activity will keep screaming along, lagging any public market connections by a few months. But if the big IPOs fail or miss, quite a lot of paper profits will disappear. And with it, I presume, some private capital interest in venture capital will evaporate as well.
That, eventually, could finally slow down tech startups.
Top Image Credit: Li-Anne Dias.
Every bull run looks like lemmings herding, from a sufficiently high altitude.↩