Which IPOs We Need in 2016Author: Max Odenthal
2015 was a disappointing year for the IPO and therefore, for the virtual data room industry, too. Only few leading companies went public. Key players who did execute IPOs last year largely saw underwhelming performance. Etsy, for instance, an online craft retailer, which increased its share value by 88% on the first day of trading, joined the 10 worst performing stocks of any publicly offered US company by the end of the year. Its shares traded well below their $16 IPO value. A strong venture capital market in 2015 also reduced the incentive for companies to offer stock to the public. This year, however, with venture capital firms becoming more careful with their investments and reducing their valuations, is likely to see more top-performing companies offering shares. Here are five companies we would like to see on the market this year.
Apptus is a tech start-up that has pioneered a new category of software dubbed “quote-to-cash”. Its technology uses workflows and analytics to generate, manage and collect revenues, providing services such as quotes, contract signings, invoicing and revenue recognition. Despite not being an enormous player- Apttus’s revenue was $120 million last year- the start-up shows a lot of promise. It currently has 75 of the fortune 500 of its client list, and has market potential of $31 billion, set to increase to over 40 billion by 2018. The company’s revenue is growing at 80% and it retains 95% of its customers. CEO Kirk Krappe is considering an IPO for this year. If the IPO happens, its excellent statistics will make it extremely attractive to investors.
Stripe is a digital payment solutions provider. The company, which was founded in 2009, has built links with a number of important partners, for instance supporting Apple’s Apple Pay service and AliBaba’s AliPay as well as selling its services to Facebook and Twitter. Stripe is the world’s second-largest digital solutions provider after PayPal.
Stripe faces unrelenting competition in its industry, with its main rival PayPal processing $50 billion in transactions last year and occupying 41% of transactions from main websites compared to Stripe’s 14%. Even with the new and unique services it has developed in 2015 such as its Relay button, which makes it easier for consumers to buy products via apps, this means that Stripe needs to use every trick it can, including, possibly, an IPO, to get ahead in the industry. Stripe will be watching the performance of another digital payments service, Square, which went public earlier this year and, despite a wobbly start, is seeing significant improvement in the price of its shares. Stripe has seen some amazing results in the past few years, with its valuation increasing from $1.75 billion in January 2014 to $5 billion this July.
Dropbox, a cloud storage company, is one of the companies that Anand Sandwal, the CEO of CB Insights, a financial analytics company, calls “dragged-to-IPO”. These companies underperform compared to their valuations when their stock is only privately traded. Dropbox’s valuation was boosted from $4 billion to $10 billion last year, but after a couple of months had its valuation downgraded by 24% by BlackRock. Dropbox’s growth is trailing off after facing stiff competition from Google, Microsoft, Apple and Amazon. However, this does not mean that Dropbox will be unattractive to investors and goes through with an IPO. Now that the company’s valuation is relatively low, this could be the perfect time for investors skeptical of overvalued tech start-ups to make their move.
Pinterest is one of the top 10 billion-dollar start-ups, having grown its valuation from its initial angel investment of $500 million to a current valuation of $11 billion. According to Kristen Koh Goldstein, a Wall Street veteran and CEO of finance support start-up Scalus, Pinterest has been doing everything possible to get its financial house in order before an IPO, where it would join fellow social media giants Facebook and Twitter on the public markets. For instance, Pinterest has been gradually gearing itself to monetization, making it easier for companies to place ads on their website as well as new buttons on the website which allow customers to buy products or add ingredients for recipes directly to their checkout basket. This means a more consistent stream of revenue, as retailers have more incentive to use the website to market their product. This, together with the platform’s growing user base, should allow Pinterest to weather the scrutiny of the public markets.
Airbnb is the third most valuable start-up in the world, with a valuation of $25 billion last summer after raising $1.5 billion in investments. The sharing-economy website, which allows travelers to hire homes from private individuals, had 1 million bookings on New Year’s Eve alone. The good news for investors is that Airbnb may well go public in the near future. Airbnb has been moving aggressively into markets all over the world- including normally isolated Cuba. If Airbnb goes public, stock can be used by the company to pull off overseas deals. Such new deals can help the company hold off the competition, such as online booking giant Expedia.