Kiplinger: The 13 Hottest IPOs to Watch For in 2020
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Kiplinger: The 13 Hottest IPOs to Watch For in 2020
By Tom Taulli, Contributing Writer/Kiplinger
2020 could be a hot year of IPOs despite a few high-profile disappointments last year. Investors finally got their chance to snap up shares in hot companies such as Uber Technologies (UBER), Lyft Inc. (LYFT) and Pinterest (PINS) … but those three and others posted sobering losses for anyone who bought in early.
What went wrong?
Well, the same thing that often goes wrong for IPOs early on: The market for them is fickle. But while the stocks above were money-losers, the average IPO gained 20% across the year, according to IPO research firm and ETF provider Renaissance Capital. Interestingly, the top-performing sectors for initial public offerings were more traditional fare, such as consumer staples, health care, financials and materials.
One of the biggest obstacles for IPOs last year was the widely publicized implosion of workspace real estate firm WeWork, which had to cancel its planned 2019 offering because the company was running out of cash. It was a stiff reminder that high growth isn’t enough – there has to be a viable path to profitability.
Despite some deserved investor skepticism, however, it still looks like 2020 could rejuvenate IPO enthusiasm.
Here, we look at some of the most prominent IPOs that could happen in 2020. This list includes companies that have filed Form S-1 with the SEC, have unofficially stated their intentions with Kiplinger or other media outlets, or have made moves similar to other firms preparing to go public.
During the financial crisis, Brian Chesky and Joe Gebbia were struggling to afford their San Francisco apartment. To make ends meet, they rented out their apartment during an industrial design conference and bought air mattresses for their guests to sleep on. What they called “Airbed and Breakfast” at the time later became Airbnb and re-shaped the home sharing industry.
The initial website was rudimentary, but people still saw the value in the service, and growth quickly followed. Airbnb currently lists more than 7 million accommodations and is available in more than 220 countries and regions. It not only surpassed $1 billion in revenues last year, but also achieved profitability on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis. Based on private market transactions, the company is valued somewhere between $31 billion and $35 billion.
The company has been expanding its platform into other categories. Its Luxe offering is focused on luxury homes with services and amenities. The company also shelled out $463 million last year to buy up HotelTonight – an app for last-minute bookings.
Airbnb announced in September 2019 that it planned on going public this year. Bloomberg reported that the company will pursue a direct listing, instead of an IPO, according to sources familiar with the matter, though that hasn’t been officially announced. In a direct listing, a company will bypass Wall Street underwriters and issue shares directly to the public – a strategy that helps a firm to keep more of what it brings in, but can backfire if the company doesn’t properly gauge demand.
One last note: Airbnb is beset with controversy. Over the years, its rentals have been the center of numerous safety and criminal issues, ranging from voyeurism to even murder. For instance, in October 2019, five people were killed at a “mansion party” held by some of its renters. Airbnb has taken efforts to bolster its screening measures and safety precautions, but its network’s sheer size and the nature of a lodging business essentially run by individuals mean there’s still a high risk of future worrisome headlines.
Albertsons – currently the country’s second-largest supermarket chain – exited the public markets in 2006 when it was bought out by a group of investors including private-equity firm Cerberus Capital Management, CVS Health (CVS) and SuperValu.
The grocery firm has tried to go public multiple times since then. A hoped-for IPO in 2015 fizzled. In 2018, a reverse merger of sorts – one that would see Albertsons buy Rite Aid’s (RAD) shares to join the New York Stock Exchange – ended in termination. But Cerberus is considering giving it another go, with The Wall Street Journal reporting that it’s discussing an Albertsons IPO. The deal would potentially be worth $19 billion, and the company has been updating IPO documents filed with the SEC, the WSJ’s sources say.
A pending threat – industry disruption from Amazon.com (AMZN) – still buzzes in the background. But Albertsons has been making some important changes that might help it better survive on its own. Between Q3 2018 and Q3 2019, the company has dropped its debt load from $11 billion to $8.75 billion; it has innovated its product line, launching more than 1,100 new items over the past two years; and it has invested heavily in e-commerce.
The company also has recorded eight consecutive quarters of growth in identical-store sales – an important retailer metric, often called “same-store sales” or comps, that measures revenues generated at stores open for at least a year.
Casper is a next-generation mattress company that says it’s “setting a new standard in sleep innovation.” In its early days, the focus was simple: Ship a comfortable foam mattress in a relatively small box to your home. It has gone on to develop an assortment of other products such as the Wave mattress (which has ergonomic features), a wireless bed lamp and even a dog mattress.
Casper also started out online, but that proved limiting – many people still want to give the mattress a bounce or two before buying. So Casper launched its own brick-and-mortar stores in 2018.
The firm has received funding from a host of celebrity investors including Leonardo DiCaprio, Adam Levine and Tobey Maguire. More recently, it raised $100 million, at a $1.1 billion valuation, from investors including Target (TGT), Crate & Barrel founder Gordon Segal and Canada Goose Holdings (GOOS) CEO Dani Reiss.
Casper officially filed its Form S-1 – a requirement for going public – in early January. Lead underwriters on the Casper IPO are Morgan Stanley, Goldman Sachs and Jefferies.
The company still is growing, though no one will mistake it for a hot tech startup. Revenues through the first nine months of 2019 were $312.3 million, up 20.3% year-over-year, according to its S-1. And that came on a heavy $144 million spend on marketing and advertising. Meanwhile, Casper’s net loss widened from $64.2 million to $67.4 million in that same time period.
Compass is creating an end-to-end platform where people can buy, sell and rent real estate. Some of its offerings include:
Concierge (a service to help improve the sale of your home with staging, flooring and painting)
Bridge loans (the fronting of up to six months of your loan payments)
Compass Coming Soon (An early-listing service meant to drive up interest before your home officially hits the market)
Compass, which is powered by artificial intelligence, still has a strong human element. Its 12,000-plus agents make it the largest independent real estate broker in the U.S.
This hasn’t been a cheap buildout. Compass has raised a hefty $1.5 billion since 2012, including a $370 million round in July that valued the company at $6.4 billion.
There are other red flags to consider, too. During the past year-and-a-half, Compass has suffered high-profile departures from the executive suite, including the chief financial, operating and marketing officers. It also might draw some skepticism given that one of its major investors is Softbank (SFTBY), which has been tarnished by its investments in Uber and WeWork.
Nonetheless, Compass is growing rapidly, with revenues up 250% since the second quarter of 2018. And as long as the economy remains robust, the real estate market should still be a decent opportunity.
Just put Compass among the most tenuous IPO probabilities for 2020. WSJ reports that a person familiar with Compass’s plans says the involvement of Dragoneer Investment Group “is a sign the brokerage firm is considering a public offering in the near term,” citing its investments in Slack Technologies (WORK) and Uber ahead of their offerings.
Data analytics platform provider Databricks has seven founders who helped to create the Apache Spark open-source cluster-computing framework in the mid-2010s. Databricks’ technology, very briefly, allows organizations to prepare their data for analysis and use their data to make decisions. The company is focused on commercializing Apache Spark via its cloud-based interface and enterprise-grade functions.
Databricks raised $400 million at a $6.2 billion valuation in October. Andreessen Horowitz’s late-stage venture fund led the round, which was joined by BlackRock, T. Rowe Price Associates and Tiger Global Management.
This is a high-growth outfit that boasted more than 250% year-over-year expansion in its annual recurring revenues. If Databricks does go public in 2020, it could be an exciting offering given that the enterprise-software market was a bright spot among tech IPOs last year.
After the $400 million funding was announced, CEO Ali Ghodsi told TechCrunch that “an IPO is not something that we’re optimizing for, but it’s something that’s definitely going to happen down the line in the not-to-distant future.”
The database market is a massive, established one that’s dominated by blue-chip companies such as Oracle (ORCL), Microsoft (MSFT) and International Business Machines (IBM). However, it’s also undergoing wrenching changes thanks to growth in mobile technology, cloud computing and AI.
DataStax, which was founded in 2010, is attempting to capitalize on the sea change. Founders Jonathan Ellis and Matt Pfeil based their proprietary technology on the Apache Cassandra open-source database, which originally was developed at Facebook (FB) to help the social giant manage massive data sets.
DataStax is focused on the enterprise, boasting more than 400 customers that include the likes of McDonald’s (MCD), Cisco Systems (CSCO) and Capital One Financial (COF). It claims its technology is “impervious to database downtime,” and it allows companies to scale as necessary.
“Given that the database market does have more than enough room for another data software company, it may be an interesting investment over the long-term,” says Josef Schuster, founder of IPO-focused index provider IPOX Schuster LLC, “in particular if the stock is moderately priced at the onset of trading and rises only moderately initially.”
Reuters reported last March that the company was preparing for an IPO, and two months later, the company told Business Insider that CEO Billy Bosworth was putting together a new executive team. While rumors have continued to circulate about an offering, DataStax hasn’t made any formal announcements.
DoorDash, founded in 2013, is a top online food delivery service with a 37% U.S. market share. The company relies on an army of contractors to deliver meals. It raised $600 million in May 2019 at a $12.6 billion valuation, then reportedly sought a $400 million credit line – a common step ahead of an IPO.
But it never offered in 2019, and there was no real explanation. It could have been that Wall Street’s renewed focus on profitable growth, thanks to WeWork, made DoorDash look out of place. The company expected to have lost roughly $450 million in 2019. It also didn’t help that rival GrubHub (GRUB) saw its stock price plunge 37% last year due to concerns about intensifying competition.
DoorDash may indeed go public this year, but via a direct listing; Bloomberg reports the company has talked to Goldman Sachs about such a move. Going that route would allow the company to avoid the scrutiny of the traditional IPO process, which includes an investor “roadshow” where executives pitch to potential investors.
DevOps – short for “development and operations” – tools and services help bridge the gap between information technology teams and software developers to help bring new software to life in a smoother and faster manner. It’s a high priority for the enterprise, especially among companies that are executing digital transformations.
That’s good news for GitLab, which operates a platform that helps manage the process, allowing users to organize projects, optimize work flow, track project issues and much more. In 2019, Forbes named GitLab No. 32 on its top 100 cloud companies.
“Gitlab has captured all aspects of software development and release, making it one of the stickiest websites around,” says Nancy Wang, Head of Product for Amazon Web Services (AWS) Backup. “The platform hosts core company intellectual property and has solid recurring revenue. Added capabilities such as time-tracking make it a collaborative favorite of VCs as well.”
CEO Sid Sijbrandij has said publicly that he wants to list the company on Nov. 18, 2020 – his grandfather’s 100th birthday. However, the means of listing has not been determined.
“At this time we are considering all our options, IPO or direct listing in 2020,” Sijbrandij said in an email to Kiplinger. “We want to go public this year as the market is well-aligned for us with massive opportunity and demand for our product.”
But a unique business model has allowed this health-care company to thrive, now boasting 77 offices across the U.S. You buy an annual membership ranging from $149 to $199 that allows you to access in-person primary care, online services (including 24/7 live videos with doctors) and a mobile app.
One Medical boasts roughly 6,000 employer clients, and roughly 45% of its 397,000 members use the company’s digital services every month. Its Net Promoter Score – a customer relationship score that measures how likely customers are to recommend a product or service – is above 90. For comparison’s sake, that’s far higher than even beloved brands such as Costco (COST, 74) and Apple (AAPL, 68).
One Medical is now under the leadership of Amir Dan Rubin, who previously was executive vice president and divisional CEO at UnitedHealth Group’s (UNH) Optum division. And it was the first company to file an S-1 in 2020, sending its paperwork to the SEC on Jan. 3. We learned that revenues climbed 28.6% year-over-year during the first nine months of 2019, but that its net loss widened by 27.2%, to $34.2 million.
“We’ve seen a lot of interest in One Medical in the private market, which we attribute to the demand for personalized medicine that’s accessible and on-demand,” says Barrett Cohn, CEO and co-founder of San Francisco-based investment bank Scenic Advisement. “Having a flagship customer like Google among their 6,000 clients definitely suggests that there’s an appetite for their services from employers, and there’s still a lot of the market left that One Medical could work towards capturing.”
Craig “Tooey” Courtemanche, CEO of Procore – a developer of software to manage construction projects – says in an open letter that his company “isn’t a story of overnight success. It’s a story of trial and error and perseverance.”
Courtemanche’s interest in construction started during his childhood; his father worked in the industry during the 1980s. In his 20s, is interest shifted toward computers, and he even started a web development company. But after seeing firsthand the challenges of building a new home, he worked on Procore, which eventually was founded in 2003.
While growth was slow in its first few years, Procore has since turned into a small software powerhouse that raised $340 million as of late 2018 and is estimated to have posted more than $400 million in revenues last year.
“In an increasingly global marketplace, cloud has enabled software to reach more customers because it provides significant cost advantages in scaling and maintenance,” says Matt Holleran, general partner of Cloud Apps Capital Partners, a venture capital firm. “Now vertical cloud software is emerging as a venture-backable, global opportunity. As a vertical-focused market leader in the construction industry, Procore is a great example of this.”
Bloomberg reported in September 2019 that Procore was working with Goldman Sachs on an IPO that could value the company at more than $4 billion, according to people familiar with the matter.
Reynolds Consumer Products
Reynolds Consumer Products was founded more than 70 years ago and boasts some of America’s well-known brands, including Reynolds Wrap aluminum foil and Hefty trash bags. It also boasts a long history of product innovation: the food-storage bag, the slider closure, the drawstring trash bag, the odor-block feature and more.
The Reynolds Consumer Products IPO will be among the first of the year – it filed its S-1 in November 2019, set IPO terms on Jan. 21 and plans to price its offering on Jan. 30. The stock, which will list on the Nasdaq under the ticker REYN, expects to price its shares between $25 and $28 and raise $1.25 billion, which would value the company at $5.4 billion.
Reynolds’ S-1 points out that 21% of revenues in 2018 came from products that were less than three years old. But in addition to product innovation, Reynolds has been investing heavily in its e-commerce strategy, and launched various products that are exclusive to online operators.
Reynolds’ growth is minimal, but its finances are fairly solid. The company generated $135 million in profits off $2.1 billion in sales during the first nine months of 2019, versus $92 million off similar revenues during the same period in 2018. It’s also a cash generator that produced $448 million in free cash flow across all of 2018, and in fact, it plans to pay a dividend.
Car insurance upstart Root Insurance, founded in 2015, says that it can offer premiums at more than half off the competition – so long as you are a good driver. The company leverages sophisticated analytics and mobile technology, tracking metrics such as drive times, turn speeds and braking, to better align rates with an individual driver’s risk.
Users can purchase, manage and cancel their policy via the mobile app, as well as talk to a support agent.
The company grew its insurance premiums by 12x during the first half of 2019, to $133.4 million, but also notched $126.6 million in direct losses.
Root Insurance most recently raised funds in September: a $350 million haul that valued the company at $3.65 billion. The firm planned on offering plans in all 50 states and Washington, D.C., by 2019’s end, but appeared to be short by a dozen states as of the most recent look at its online presence map.
Root Insurance is the biggest question mark on this list. It made Renaissance Capital’s list of notable private companies it expects to go public in 2020, but the firm itself has been mum.
ZoomInfo, which was founded in 2000, is a software-as-a-service (SaaS) firm that helps connect marketers, salespeople and recruiters with businesspeople via its massive database.
DiscoverOrg acquired ZoomInfo in February but rebranded as the latter – a transformative M&A deal that greatly bolstered their resources. The combined entity serves 13,500 customers and generates annual recurring revenue of $350 million. The database features more than 100 million verified business-to-business (B2B) professionals, 5.5 million C-level contacts, 20 million decision-maker email addresses and 16 million decision-maker direct dials.
ZoomInfo’s dealmaking wasn’t done there. In March, it bought out email verification and list-cleansing firm NeverBounce, and in November, it acquired customer relationship management (CRM) startup Komiko.
In December, ZoomInfo confidentially filed its S-1, which means the SEC will review it before it goes public. Given the timing of its filing, an IPO could occur during the first half of this year.