Despite the near-constant upheaval caused by the coronavirus pandemic, 2020 will go down as one of the best performing years for initial public offerings (IPOs). Over the last 12 months, a stunning 216 companies went public, the most since 2014, with firms raising an astonishing $78.1 billion in the process.
Consistent with previous years, healthcare and technology were the most popular sectors of the IPO market. Airbnb (ABNB), Doordash (DASH), Snowflake (SNOW), Lufax Holding (LU), and Royalty Pharma (RPRX) were the largest companies to go public this year.
And 2021 looks like it could be just as good for public debuts, according to Kathleen Smith, IPO ETF manager at Renaissance Capital.
“As long as the market holds up, we could very likely see a better year in 2021 than we saw in 2020,” Smith told Yahoo Finance. While the IPO market started out strong in 2020, the pipeline essentially closed down in March because of the pandemic before picking up steam again in the second half of the year. Momentum looks promising heading into the new year, assuming the Federal Reserve’s easy money policy stays intact for the foreseeable future.
Overall, this year’s slate of public offerings performed extraordinarily well during and after their IPOs. The Renaissance IPO ETF (IPO) is up 119% this year compared to the S&P’s overall 14.3% gain, logging its best year ever. The average return on a U.S. IPO this year was 75.4%, compared to last year’s 24.4% and 2018’s -1.9% loss.
With two COVID-19 vaccines now authorized in the U.S., one potential shift is a so-called return to normalcy that may not favor growth-oriented healthcare and tech companies, and instead may benefit cyclical names that aren’t as high-flying. “We can’t be so sure that the tech IPOs will be the ones at the top of the 2021 list. The minute there’s any kind of worry, markets correct and deals get priced more conservatively and they don’t get done,” Smith said.
2021’s big-name companies range from communication services and consumer discretionary to fintech and materials. Juggernauts like gaming platform Roblox, buy-now-pay-later retailer Affirm, and chemicals and equipment company Atotech are each poised to raise as much as $1 billion. And there are plenty of other firms waiting in the wings.
If you’ve got children, you know Roblox. The online gaming platform, valued at $4 billion, allows users to create and publish their own video games using Roblox’s tool set. It’s part creation, part play, and expected to hit the public market next year. Founded in 2004 by David Baszucki and Erik Cassel, the company makes money through the sale of its Robux in-game currency.
In the nine-month period ending in September, Roblox had 31.1 million daily active users, an 82% increase from the same period a year ago. Revenue hit $589 million, but its net losses totaled $203 million, four-and-a-half times the $46 million it lost in the same period of 2019.
Roblox, which was widely expected to debut in December, delayed its move into the public markets after Doordash and Airbnb made it difficult for the video game company to price its shares, according to The Wall Street Journal.
Smith says the firm should see a huge amount of interest from investors.
“I look at Roblox and, although they are losing money, they have positive cash flow and it’s a $1 billion-plus IPO, so I think investors are going to pay attention to that,” Smith said.
Affirm Holdings (AFRM)
Affirm Holdings, like Roblox, was expected to IPO in December 2020. However, it delayed the move until at least January 2021 after Doordash and Airbnb saw massive pops during their public offerings.
The company, which could see its valuation top out at $10 billion, is part of a growing number of buy-now-pay-later services that provides 0% interest or simple interest loans for consumers looking to purchase everything from shoes to exercise bikes.
Founded in 2012, the company is still losing money, posting net losses of $120.5 million and $112.6 million in 2019 and 2020, respectively, according to its S-1. Still, Affirm, which was founded by Paypal co-founder Max Levchin, is likely to see its IPO raise billions of dollars.
“The company is losing money and I think, although it’s growing really fast, these types of companies are like payday lenders,” Smith said. “They have some things investors have to pay attention to when it comes to rules and regulations.”
Initially expected to IPO in the first half of 2020, Carlyle Group-owned Atotech delayed its debut due to the coronavirus pandemic and fears that it would hurt its valuation. The company makes specialty chemicals and equipment found in everything from smartphones to communications infrastructure.
The German firm filed its F-1 with the Securities and Exchange Commission in January 2020, reporting consolidated net losses of $23.7 million in 2018 on $1.2 billion in revenue. In the nine months ending in September 2019, though, the firm saw net income of $12 million on $877 million in revenue, and its IPO deal could top out at $1 billion.
Of course, the company will also have to contend with variables in the broader tech industry including the whims of consumers and enterprises purchase cycles for electronics infrastructure.
It’s where the pets go, and in 2021, it’s where investors will go, too. The pet retail giant Petco is set to go public in 2021 with a deal worth as much as $800 million. Founded in 1965, the company was last publicly traded in 2006 and has since been owned by private equity investors.
In the company’s S-1, CEO Ron Coughlin goes even further, saying: “Petco has grown from a local veterinary supplies shop to a disruptive, fully integrated, digital-led, comprehensive pet care ecosystem that puts the health and wellness of pets first.”
That’s a fancy way of saying you can get virtually everything you need for your pets from the retailer. And judging by online pet retailer Chewy’s (CHWY) stellar performance since going public in June 2019 — up 107% — Petco thinks the demand for pet products will only continue to grow.
The company, which will be delightfully listed as WOOF, has seen its profitability improve as of late. Net losses in 2018 came in at $413 million, but fell to $103 million in 2019. Net sales in the same period rose from $4.39 billion in 2018 to $4.43 billion in 2019.
Southeastern Grocers (SEGR)
Southeastern Grocers, which operates 420 supermarkets under the Winn-Dixie, Harveys, and Fresco y Más names, is an interesting addition to this list because it only emerged from bankruptcy in May 2018. In its S-1, the company says its overall financial performance was hurt by its aggressive expansion from 2011 through 2015, which saw its store base expand by 256%.
Since then, its profitability has improved with the company reporting a net loss of $62 million in the 28 weeks that ended July 10, 2018, only to turn that into net income of $205 million in the 28 weeks that ended July 8, 2020.
Now a leaner organization, Southeastern Grocers is seeking to IPO in 2021 and could raise as much as $500 million.
The future pipeline
While many of these companies are looking to hit the public exchanges in the traditional way, 2020 was a banner year for alternative ways to go public — namely, the SPAC (special purpose acquisition company). Two hundred and forty one SPACs raised $73.4 billion. While household names are likely to pursue a traditional IPO or even a direct listing, those looking for a quicker liquidity option will consider these so-called blank check companies to take them public.
Investors should expect to see alternative means of going public remain prominent in 2021. “Private companies like Paysafe and Opendoor took advantage of the speed and price certainty that the SPAC structure offers during an uncertain market. Now, companies have more options than ever when they pursue a public listing with SPACs and direct listings both emerging as ‘mainstream’ options,” according to pre-IPO marketplace EquityZen.
Aside from the aforementioned five that are almost surely going to go public in 2021, there’s a slew of other hotly anticipated debuts of companies that have become household names. Payments platform Stripe, grocery delivery startup Instacart, stock trading app Robinhood Markets, residential real estate brokerage Compass, dating app Bumble, online education platform Coursera, and fashion players ThredUp and Poshmark are all readying their market debuts.
Dan Howley is the tech editor based in New York. Melody Hahm is the west coast correspondent based in Los Angeles.