Investment Opportunities

The Era of Upcoming IPOs Continues to Surge in 2019

There are many historic periods dating the stock market – some good, some bad. The dot-com bubble. The Roaring ’20s. The Great Recession. Right now, we’re in the middle of yet another epoch: the age of unicorn IPOs.

This exemplary period in stock market history is aptly-named for the slew of upcoming IPOs that have investors clamoring. A surge of venture-backed, game-changing companies have already made their way to the public markets. Their subsequent success fueled even more IPOs. The result? Company after company has gone public, with still more lining up to offer shares.

These aren’t no-name companies, either. The reason IPOs are booming is because some of the biggest, most popular companies are going public. It’s an unprecedented time in the public markets. Investors are rightfully excited. They’ve seen the success of mega companies like Amazon (Nasdaq: AMZN) and Netflix (Nasdaq: NFLX) – that, only a decade ago, were small startups themselves. Now, they’re embracing the potential for growth in the next wave of innovative companies.

2019 Has Already Been Historic

Not too many companies go public each year. Usually, there’s one or two big IPOs, followed by a few small cap companies or microcaps with middling potential. These new IPOs tend to fall under the radar at first. After a few quarterly reports, they’re either picked up by cautious investors or left to float. A few more are acquired not long after their IPO.

2019 has been a game-changing year for the status quo. Not only have there been a slew of recent IPO stocks, these are companies with $10 billion to $100 billion market caps. More importantly, demand for them has been unprecedented. These new IPOs aren’t treading water – they’re popping at two or even three times their listing price inside of a week. Take Beyond Meat (Nasdaq: BYND), for example. The stock listed at an IPO price of $25 in May 2019, skyrocketing to almost $235 by the end of July 2019.

Not every new IPO has been a rocket to the moon. Ride-sharing behemoths Uber (NYSE: UBER) and Lyft (Nasdaq: LYFT) both went public earlier this year, and both are currently trading below their IPO prices. But even despite being down, both companies continue to see strong trading action. More impressively, these two IPOs represent something unheard of until now: Two large cap competitors – a veritable duopoly – going public within 30 days of each other.

The historic nature of 2019’s IPO rush doesn’t stop there. Tech companies like Zoom (Nasdaq: ZM), CrowdStrike Holdings (Nasdaq: CRWD) and Fastly (NYSE: FSLY) represent a parade of software and computing solutions providers pumping up the public markets. The tech sector is becoming more diversified with each passing month.

Investors who are fans of athletic companies like Lululemon Athletica (Nasdaq: LULU) and Nike (NYSE: NKE) will wait with bated breath to see how the Peloton IPO pans out after a rocky first few days of trading. The exercise company has already made waves with its stationary bike and treadmill, and appears to be moving into subscription services with its at-home fitness class model.

2019 has also brought us some IPO oddities. The much-anticipated Slack IPO actually took the form of a direct listing, as opposed to a conventional public offering. Even more bizarre, the much-talked about WeWork IPO was eventually pulled over backlash from press and investors.

While many IPOs have already debuted on the public markets – exactly 100 companies in 2019 so far – it appears there’s much more to look forward to.

Upcoming IPOs Have Investors Excited

Investors learning about IPO opportunities

For investors who missed out on recent IPOs or who love to roll the dice on new stocks, 2019 isn’t done yet. In fact, rumors and indications are abuzz about many upcoming IPOs into 2020. Several companies have already filed their S-1 paperwork and intend to IPO before the end of the year.

For investors watching the tech stock landscape, the Dynatrace IPO and Datadog IPO prospects are equally intriguing. Though the companies have two different target markets with different services, they’ll serve to draw the attention of anyone with a software as a service (SaaS) emphasis in their portfolio. They’re two of the many tech companies going public in the next six to 12 months.

Adding to the intrigue are rumors of several more big-ticket IPOs that haven’t officially announced yet. The biggest and most anticipated of the bunch is an Airbnb IPO. The vacation-booking platform would immediately disrupt traditional travel stocks like Booking Holdings (Nasdaq: BKNG) and Expedia Group (Nasdaq: EXPE).

Rumblings around a potential upcoming IPO for virtual trading company Robinhood also have investors excited. Fintech has been one of the hottest up-and-coming markets of the past few years and Robinhood would be the crown jewel in the portfolio of a fintech-focused investor.

There’s even speculation about some pre-IPO acquisitions that may occur. With the IPO of Grubhub (NYSE: GRUB) in 2014, many suspected competitor Postmates would be close behind. Five years later and we’re closer to a Postmates IPO than ever before. However, even if the company plans to IPO in 2019 or 2020, its plans could be derailed by an acquisition from Uber. Many analysts speculate Postmates may become an extension of Uber Eats, thanks to its subscription-based business model.

2019 has been prolific for IPOs. So prolific, in fact, that you can take out a calendar, point to any given week and there’s likely to have been an IPO. Huge companies are entering the public markets at a pace unprecedented throughout the history of the market.

Tech Stocks Are All the Rage

The one thing all these new IPO stocks have in common is their tech-based nature. Uber, Peloton, Slack and Datadog may have drastically different business models, but they position themselves as preeminent tech companies. Not pure tech companies mind you, but rather tech-based “disruptors” in traditional industries. It’s the same for just about any other recent IPO and most upcoming ones.

This is a trend that’s likely to continue into the future. Upcoming tech IPOs represent the new wave of business. The lines between different stock market segments – financials, healthcare, industrials, consumer discretionary, etc. – are all becoming more technologically-powered. In a way, every company is a tech company, no matter their product, service, demographic or market cap.

While pure tech companies have dominated the IPO market, tech-driven business models have fueled some of the most anticipated IPOs in other sectors. This is especially true for fintech and healthcare technologies. Looking ahead in 2019 and early 2020, we’re poised to see tons of tech-based healthcare and biotech IPOs, as well as fintech companies coming to market.

Why So Many IPOs Now?

Wondering why so many companies have decided to make their initial public offering right now? The answer is simple: there’s demand.

Many of the companies going public today are big brand names. Uber and Lyft are unrivaled in the ride-sharing market. Beyond Meat is the first mass-produced vegan product of its kind. Slack is a tool used by 10 million people daily, across 65 of the top Fortune 100 companies. These aren’t under-the-radar companies going public.

Investors are looking at these major businesses and seeing how entrenched they are in everyday life. There’s clear and obvious customer demand for their products and services. That translates to clear and obvious demand for share ownership. Before they even enter the public markets, these companies have people clamoring to buy shares. By the time they do IPO, it’s all but certain the share price will rise.

On the flip side, there’s also a financial advantage in going public. “Unicorn” IPOs are named for a reason – they’re built on venture capital. They can carry a lot of debt and private investors are heavily vested in them. Going public is a way to cash out some of that investment (with interest) and reduce debt on the balance sheet. With investors buying up shares, unicorn IPOs can reduce some of their debt, while still pursuing growth initiatives. Both look good on a balance sheet, which comes in handy when delivering subsequent quarterly reports.

Should You Invest in Upcoming or Recent IPOs?

There are plenty of new IPOs to choose from and still more to come. But the real question is, should you invest in the latest IPO? It depends on what kind of investor you are.

Any new IPO is risky – even large cap companies with established brands. The reason? The balance sheet is still new and unfamiliar. Conservative investors will generally wait a few quarters to see how a new company performs on the public markets before investing. In doing so, they can lose out on a lower entry price of an IPO, but they gain confidence in company performance over time. They also avoid the headaches of a rocky start for a newly listed company, as we’ve seen with the likes of Uber, Lyft and Peloton.

Of course, investing in an IPO does come with some major upside. Look at Beyond Meat or NextCure (Nasdaq: NXTC) – two companies that have doubled in the course of a few months since their IPOs. Investors who took the plunge on IPO day (or shortly after) have been rewarded by great returns. Some of the day-one investors are also value investors who plan to buy and hold for many years, hoping to snag the next Amazon or Apple.

If you’re confident in the wave of digitization disrupting traditional sectors of the economy, nabbing a few shares of a company at its IPO price is a good bet. Or, if you’re someone who buys and holds for years or decades, picking up IPO shares is a great idea. For more conservative investors or traders, waiting a few quarters to examine the numbers might be smarter.

Above all, consider a company’s value proposition against your investing philosophy. Do you believe in the company’s product or service? Its leadership? Do you see a path to profitability in the future? What’s the company’s competitive advantage or moat? If you’re excited about a new IPO after doing due diligence, invest with confidence. If you think the IPO is more of a cash grab than an offering, steer clear.

Now is the Golden Age of IPOs

There are more companies about to go public in 2019 and even more slated for 2020. If the wave of recent IPOs has shown us anything, it’s that investor confidence in new companies is at an all-time high. There’s demand for disruption in many traditional industries, and plenty of companies are answering the call. Investing in them now could pay major dividends in five or 10 years – especially for companies already entrenched in our everyday lives.

Amazon went public in 1997 at $18 per share. Netflix saw its IPO in 2002 at $15 per share. Facebook hit the public markets in 2012 at $38 per share. These examples in recent history go to show that the next big thing is always right around the corner. Today, Amazon shares trade at about $1,700, Netflix at $280 and Facebook at $180. Taking a gamble on any of these IPOs would land you enough to retire comfortably today. And they’re not the only ones. Hundreds of companies have taken to the public markets over the last few years. Many of them continue to perform above expectations today.

The wave of IPOs in 2019 is a call to action for investors. It’s rare to see so many promising companies sell shares, and even rarer for them to enter the market in such rapid succession. You don’t have to buy them all to take advantage of this historic opportunity. But it’s prudent and wise to consider looking at one or two that match your investing philosophy.

Every era of the stock market is marked by a window and nothing lasts forever. Bull markets fade to bears, which eventually turn into bulls again. Markets crash and correct, only to surge and grow. We’re in the middle of the golden age of IPOs, but it’s bound to come to an end at some point. For the moment, it’s important to recognize the opportunities entering the market.

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