It’s been a very interesting year for IPOs.
We’ve learned that investors are paying a lot of attention to a company’s profitability. They’re ignoring the hype that surrounds some private companies and focusing more on if the company will make them a return. After all, that is the point of investing.
2020 is going to be even more interesting because of this “change.” Companies looking to go public will have to be realistic when setting their offer price and determining valuation. Investors don’t want to be fooled by all the marketing hype that usually comes along with IPOs.
These are just a few reasons why 2020 could be a huge year for profits in the IPO market. Here are three IPOs that you should be on the lookout for in 2020.
Airbnb
The home-sharing platform Airbnb recently announced that a public debut will be likely in 2020. There are rumors that the company won’t go the traditional route with its public debut; instead of an initial public offering, Airbnb is expected to make a direct listing.
Airbnb revenue experienced a growth of 31% year over year, bringing in $839 million. It has $3 billion in cash on hand and an untouched $1 billion line of credit.
The company does have the ability to grow its revenue and has acquired a decent size of market share. It acquired Hotel Tonight in hopes of expanding more into the hotel listing realm. This acquisition could be huge for the company and allow for an increase in its market share.
In 2019, Airbnb did increase its sales and marketing spending to $367 million in the first quarter. Its total expenses increased by 47% in the first quarter, while revenues only increased by 31% for that same period. This increase generally would look bad; however, the company needed to increase its expenses a bit so it could prepare to become a publicly traded company.
A direct listing would save Airbnb millions of dollars in underwriting fees that it would normally have to pay if it went the traditional IPO route. Investors are familiar with Airbnb and its brand, so there’s no need for additional marketing before it goes public. The company has a $35 billion private valuation, and if the listing happens, it would be one of the largest companies to go public in 2020.
Michael Lin, director of accounting and transaction services at MorganFranklin Consulting, said:
We’re not seeing the IPO window closed yet but the market is finicky. There may be more direct listings, but it will take companies with a strong profile like Airbnb to do them.
Airbnb has a well-respected management team that will be more than capable of leading the company into a public debut, in addition to a profitable future. Last November, the company hired Dave Stephenson, who worked for Amazon for 17 years as its chief financial officer.
This addition to Airbnb’s management was a smart move. Stephenson’s experience with Amazon and his insight could easily help lead Airbnb to a future of profitability.
Hemptown USA
The number of major retailers that have started to sell products that have cannabidiol (CBD) has increased significantly, and this trend is just getting started. Every day researchers are learning more about the benefits of CBD-infused products. Cannabinoids (non-THC) products have enticed consumers, and most of them are convinced that CBD products have helped them in one way or another.
There’s a huge market potential for the CBD market, and it hasn’t even hit its high yet.
CBD is one of the best-known cannabinoids, but recently there has been growing interest in products that contain cannabigerol (CBG). CBG is a precursor cannabinoid to CBD and THC. It currently costs about $20,000 per kilogram of CBG — that’s a lot more than the $4,000 price tag that a kilogram of CBD has. Hemptown’s focus on CBG allows it to capture the CBG market before anyone else and create the path of dominance in the CBG sector.
Hemptown USA is a U.S. hemp business that could be on track for a market debut in 2020. The company aims to become the lead supplier of CBG. It’s growing over 500 acres of hemp plants with the focus on these rare genetics in hopes of becoming the lead North American supplier of CBG by the end of 2019.
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In September it unveiled its new Hemptown Chew gum, a consumer SKU that has the highest levels of hemp-derived CBD and CBG cannabinoids that are on the market. Each stick of gum contains 15 milligrams of CBD and 5 milligrams of CBG. The gum has tested well during consumer research and could easily become a tasty option for consumers.
The company has its operations in Oregon and has only been in that region for eight years. In that short period of time, the company has been very successful.
It has dried and stored 110,000 pounds of hemp and is on track to store more than 3 million pounds in 2019. Hemptown has been operational for some time now, and it has had a successful track record — not to mention its financials look solid.
Hemptown has all the makings of a successful IPO, which is why the company could go public in 2020 and offer investment opportunities for investors wanting access to the expanding CBD and CBG market.
Instacart
The delivery startup Instacart could be getting even closer to its public debut in 2020. The company recently broke off its partnership with the grocery store chain Whole Foods. In 2017, Amazon bought Whole Foods, and Amazon is focused on growing its own grocery delivery service, so there was no need for a partnership with Instacart.
Usually, an end of a partnership like the one Instacart and Amazon had would seem a little detrimental for Instacart, but that wasn’t the case at all. Instacart is extremely optimistic about its future.
Instacart’s co-founder and CEO, Apoorva Mehta, says:
Whole Foods was one of our first partners. But over the last few years, pretty much every major grocer in North America has chosen Instacart as their partner.
The company isn’t worried about the end of one partnership because it has others and will continue to grow its partnerships with other stores. Instacart reports that it delivers groceries from more than 20,000 stores across the U.S. and Canada.
Over the last year, Instacart has raised $1.2 billion in private markets, which brings the company’s valuation close to $8 billion.
Business is growing, and Instacart’s financials are reflecting that.
Mehta said, “Last year our grocery sales grew by triple digits on a percentage basis. We are now profitable on every single delivery.”
The company hasn’t specifically stated that it is profitable. However, its focus on growth and creating partnerships indicates it could be on the path to profitability if it isn’t already profitable.
We learned in 2019 that profitability matters when it comes to IPOs. Investors are interested in companies that are making money and that have plans to continuing making money. As long as Instacart is able to prove that to investors and is realistic about its valuation, investors will be interested in the company.
2020 will be the year of realistic valuation and transparency.
Until next time, Monica Savaglia Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.
