IPOs: The hot and not of 2019

IPOs: The hot and not of 2019

This has been the year of tech unicorns listing on the stock exchange. CMC Markets’ Chris Smith looks at the Initial Public Offerings that have hit the market, and how they fared.

Already, it’s clear 2019 will be a significant year for Initial Public Offerings (IPOs), as several multibillion-dollar private tech companies list on the stock exchange to gain capital from public investors.

Despite many of these organisations being household names – like Uber, Lyft and Airbnb – they’ve faced significant challenges around profitability.

Last year 84 per cent of US tech companies that went public did so without turning a profit. This happened against a backdrop of economists predicting a recession within the next couple of years. Beyond that, some have shown impressive revenue growth, similar to Amazon and Netflix.

Life as a public company will force these organisations to report quarterly earnings to the public. They’ll also have to deal with the added pressure of investor expectations around continued growth.

Beyond Meat Inc: Hot

Producer of the world’s first plant-based meat alternative burger, Beyond Meat raised just south of a quarter of a billion dollars in May. With shares skyrocketing, US company Beyond Meat is not just a top performer for 2019, but one of the most successful IPO listings in history.

Pricing its initial public offering at US$25 a share, it raised over US$240 million at a valuation slightly shy of US$1.5 billion.

Less than 24 hours later, its first trade was at US$46. Shares have since risen 700 per cent, now trading at US$166.

Despite successfully growing revenue, Beyond Meat is yet to see a profit. But it’s expected that the substitute meat category will become a multibillion-dollar market over time, taking significant share from the US$1.4 trillion global meat market.

Slack Technologies Inc: Hot

Slack’s a popular provider of cloud-based tools and services assisting with workplace collaboration. It’s pool of task management applications boasts over 10 million daily users.

The price was initially set at US$26 in June, but shares started trading at US$38.50 – before closing at US$38.62, giving the company a US$24 billion valuation. This was a big increase from the initial US$15.7 billion valuation.

Similar to its peers, Slack’s revenue is growing at double-digit pace – up 82 per cent in the past financial year and above US$400 million. But it’s still unprofitable, making a loss of US$140 million.

Pinterest: Hot

The social media behemoth’s IPO offer price was set in April at US$19. On its first date it traded at US$24, then raced up to US$34.26 that same month.

Shares have since levelled off to US$26.50, 36 per cent higher than the IPO price, just a few months into public life.

Uber: Not Hot

Rideshare company Uber was the biggest IPO of 2019 so far – in terms of both numbers and anticipation.

The shares listed at US$42, 6.7 per cent below the initial offer price of US$45. It still valued the company at US$77billion, but it’s a significant decline from the US$120 billion some bankers predicted during last year’s funding hype. Shares are currently sitting around 4 per cent above the initial listing price.

Competition in the rideshare market is heating up. Uber’s now focused on further diversifying into bike and scooter sharing, Uber Eats, Uber Freight, and exploring self driving vehicles and air transport.

Lyft: Not Hot

Uber’s rival, Lyft, was the first rideshare company to list this year, in March.

The IPO price was listed at US$72, valuing the business at US$24 billion. The first day’s trading saw shares as high as US$87 and a positive forecast, but they’ve since trended down to US$64. That’s more than 20 per cent below the price IPO investors paid.

Lyft has an estimated 30 per cent market share, operating in almost 650 cities across the United States and Canada, and also has scooter and bike hire investments. While it’s still unprofitable, Lyft has growing revenues, similar to many tech companies.

Other IPOs on the horizon?

Globally, there’s plenty of speculation this could be an unprecedented year for IPOs, while the market sits at record highs and venture capital investors want to exit some investments.

The rest of 2019 could see listings from the likes of co-working business WeWork, trading application Robinhood and accommodation platform Airbnb.

Chinese e-commerce mammoth Alibaba is strongly rumoured to expand its business by co-listing on the Hong Kong exchange, after its successful New York Stock Exchange listing.

Saudi Arabian oil giant Aramco signalled a listing back in 2016, with a potential valuation as high as US$2 trillion. The move was ultimately delayed, reportedly due to oil prices and environmental concerns. If completed, this would be the biggest IPO in history, but reports suggest this offer may now be as far off as 2021.

Experienced traders could consider taking their own view on these new IPO firms by buying into the disruption technologies or considering shorting them, due to their being unprofitable.

Shorting means to sell an asset on the expectation its value will to go down, so it can be purchased again at a cheaper price.

Otherwise, investors can just watch from a distance and stick to the proven names.

Noteworthy Kiwi IPOs in 2019

Cannasouth: Not Hot

Medicinal cannabis company Cannasouth is the newest member to the New Zealand Stock Exchange (NZX). It raised NZD$10 million in June for research and operations to further capitalise on opportunities in this growth sector.

The organisation had a rough start as a public company. It opened at 50c and an NZD$50 million valuation, but share prices dropped as low as 36c within the first day.

With proposed legislation changes and a flood of companies looking to list on the stock market, cannabis has been one of this year’s hottest investment sectors.

Next year’s local referendum is sure to create more interest from investors.

There are other Kiwi companies too in the cannabis space – Hikurangi Enterprises, Helius Therapeutics, Setek Therapeutics, NUBU and Zeacann, plus hundreds offshore.

Napier Port: Watch This Space

A new, local utility company is about to enter the NZX. Set to list in late August, Napier Port is looking to raise up to NZD$234 million. It’s selling off 45 per cent of the company to the public, with Hawke’s Bay Council retaining 55 per cent ownership.

Hawke’s Bay residents have first dibs in the IPO allocation of their local company, and hope to see the same success as the New Zealand-listed Port of Tauranga.

The funds raised in the public offering will be partly used to fund a new 350-metre wharf, which hopes to help ease congestion and increase revenue.

One concern has been the recent downward trend in log prices and China imports. With logs representing 55 per cent of exports for the port, this should be a major consideration for investors.

Published 22 August 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser.  This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.


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