2021's most anticipated IPOs

Yahoo Finance’s Alexis Christoforous and Dan Howley, along with Kathleen Smith, Principal at Renaissance Capital, discuss the hottest IPOs for 2021.

Video Transcript

ALEXIS CHRISTOFOROUS: Despite the near-constant upheaval caused by the coronavirus pandemic, 2020 will go down as one of the best-performing years for initial public stock offerings. Over the past 12 months, a stunning 216 companies went public. That's the most since 2014, with firms raising more than $78 billion in the process. Joining us now for a look ahead to the IPO market is Kathleen Smith, Principal at Renaissance Capital, and our tech editor Dan Howley.

Good to have you here, Kathleen. I just want to talk about the early look for 2021. Do you see momentum carrying over? Does it look like next year could even be a better year for IPOs than 2020?

KATHLEEN SMITH: If all these same conditions exist, we are going to have a very robust IPO market in 2021. I finally was relieved to see that Airbnb got priced this year. I've been talking about Airbnb for five years or so about when they would tap the market. So we're starting to peel off all these very large private companies whose investors want them to get liquidity. They want exits.

And we have a huge lineup of upcoming IPOs that we're going to see as 2021 opens up. And it could indeed be even a better year than 2020.

DAN HOWLEY: Kathleen, this is Dan. What are some of those companies that you're looking forward to, the ones that are coming in 2021 that you expect to be the really blockbuster ones, similar to the Airbnbs and the DoorDashes?

KATHLEEN SMITH: Yes, some of the really big ones-- Flipkart, which is Walmart's e-commerce retailer, the largest e-commerce company in India, looks like it's going to tap the market. And it has a private valuation of about $50 billion. So it should be a really big deal. Stripe, the mobile payments app, which has a private valuation of $36 billion, is also lined up. And we have Instacart for grocery delivery. Robinhood and a company called UiPath, which makes robotics process software, are very profitable, fast-growing.

These are going to be some of the very big ones that investors will get to look at once we get to see the prospectuses and they start the roadshows.

ALEXIS CHRISTOFOROUS: Kathleen, we've got to talk about Renaissance Capital's popular IPO ETF. It's up more than 110% year-to-date, gathered over $500 million in assets under management. What has been the driving force behind that ETF?

KATHLEEN SMITH: Sure. That ETF is a basket of about 50 of the largest companies that have gone public over the last two years. The top holdings include Peloton, Zoom, Uber. And we recently included some of the new names, Airbnb, DoorDash, Palentir. So we had a rebalance last week. So the index rebalance is quarterly.

The returns have been very strong for a couple of reasons. Certainly it does help to have low interest rates. And companies that go public tend to be growth companies. Most of them are growth, not value. And low-interest rates really favor growth companies. And then during the pandemic, post-March, the kinds of companies that have gone public tend to be new economy and digital companies.

So we had seen this portfolio has benefited from those kinds of companies, as I mentioned. Peloton-- you can exercise from home, and Zoom-- we're all using Zoom. So these kinds of companies that are the bread and butter of the IPO market are in this index. So that is the reason for its strong performance.

DAN HOWLEY: Kathleen, what happens if we start to see more people going back outside as the vaccines eventually become more and more readily available? Does that change the calculus of the companies are going to be IPOing in 2021? Does it change what people may be looking for? Will it focus less on work from home and those trades? Or would it still go towards those because the pandemic kind of proved them to be worthwhile investments.

KATHLEEN SMITH: Yes, these are the questions that investors are asking now and placing their bets on right now. Which are the companies that will benefit and thrive when people can go out again? I mean, I thought it was an interesting comparison to look at Airbnb and DoorDash, two of the largest IPOs of the year. With Airbnb, it was all about what will happen to Airbnb when it resumes growth when people are traveling and booking rooms? In the case of DoorDash, it's how do we look at growth that is going to slow down because DoorDash was just a huge beneficiary of restaurant delivery when everyone is stuck at home?

So investors are placing their bets and are looking forward. But the one thing I think needs to be calculated here is that some of the things we've learned with the digital economy are not coming to go away. For example, roadshows-- they're happening on Zoom. Are they going to happen again in person? I'm not sure. Because they've worked. And it's a lot less expensive and it's faster to do it on Zoom.

So there are a lot of practices that we've been developing as an economy since this lock-down that has shown us that we can do things differently, and maybe more efficiently. So I think we have to factor in that, so I wouldn't put all the bets on saying all the ones that have done so well are going to turn around and not be favorites. I think we're going to see some of these digital names really be a continuing factor. It'll be sustainable.

ALEXIS CHRISTOFOROUS: Kathleen, how do you see a lot of these companies deciding to come to the public market? We know that 2020 was also the year of the SPAC, the Special Purpose Acquisition Companies, these blank check companies. Is that going to be a trend we continue to see? Are we going to see more direct listings, maybe? Or does the traditional initial public stock offering make a comeback.

KATHLEEN SMITH: It looks like we might be driving on all three cylinders on this. Certainly SPACs have been as big as the regular way IPO market this year. So if you include the SPAC along with the regular IPO, we have dollars raised that are bigger than anything we've seen in history in 2020. We expect that to continue.

And then direct listings just got a boost from the SEC, allowing companies to raise new capital in that vehicle. And it is a vehicle that has hasn't worked so well for investors mainly because the earlier ones didn't have lock-ups. But with a lock-up and the direct listing, it looks like that vehicle could work. So I think they're choices for companies to make.

But I will come back. If you look at the returns for the regular way IPO market, they've been very good for investors. And when investors get good returns, those companies flock to that market. It's not just about necessarily low fees, developing, if you're a company, an investor base that's loyal to you and following your stock.

So when you stock performs well for investors even after the first day of trading, that's a good sign for the fact that companies are going to be well received in further IPOs. So I wouldn't discount the regular IPO market. But I would say companies have choices, and that's a good thing.

ALEXIS CHRISTOFOROUS: Certainly a lot to look forward to with new companies coming to market in 2021. Kathleen Smith, Principal at Renaissance Capital, good to see you.

KATHLEEN SMITH: Thank you.