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IPO Watch

Airbnb’s IPO and the others debuts to watch

Airbnb’s long-awaited IPO looks set to go ahead before the end of the year — despite the online holiday rental marketplace expecting its revenue to plunge 50% year-on-year, and a 25% cut in its workforce earlier this year.

The company’s plans for a share offering, initially announced late last year, seemed to have been shelved by the coronavirus pandemic, but in August Airbnb applied formally to the US Securities and Exchange Commission for a listing likely to be approved before the end of the year. This is proof that, despite COVID-19’s decimation of the travel industry, Airbnb’s potential investors can sleep easy — the company seems to be here to stay.

So, what will Airbnb’s IPO look like? At its last valuation three years ago, Airbnb was estimated to be worth $31bn and, last November, investors after indirect stakes in the company prior to its anticipated IPO valued it nearly 25% higher at $42bn.

$42billion

Valuation of Airbnb as of November 2019

That was before COVID-19 struck, of course, wiping down that value to just $18bn in April when Airbnb secured $1bn in equity debt to cover its losses, according to the Wall Street Journal.

The timing of the IPO, which the Wall Street Journal has reported is being managed by Morgan Stanley and Goldman Sachs, has raised eyebrows, given that new coronavirus infections are still increasing almost everywhere.

Although the pandemic’s immediate impact hit Airbnb as hard as anyone else, in the longer term consumers are likely to see private accommodation as safer than hotels. As big chains struggle to recover, there may be vacancies in the market which Airbnb can fill. “I think this IPO could be the steal of the century,” said Jim Cramer, the US former hedge fund manager. “Before the virus, staying at someone’s house seemed… more risky. Now the hotels seem downright dangerous.”

“Before the virus, staying at someone’s house seemed… more risky. Now the hotels seem downright dangerous” - Jim Cramer

 

The biggest IPO in history?

But Airbnb’s flotation is not the only one catching investors’ eyes. Ant Group, the financial arm of e-commerce giant Alibaba [BABA], has just filed for what could be the biggest IPO in history as it aims to raise $30bn. The Chinese giant is seeking a listing on the Hong Kong Stock Exchange and Shanghai’s Star Market, and could be in excess of $200bn according to David Dai, former senior analyst at Bernstein Research.

In the six months to June, Ant Group reported $10.5bn revenue — up 38% year-on-year — and a $3.2bn profit, a significant portion of which came from online financial services and, notably, its ownership of Alipay, China’s biggest payment app which serves over 700 million customers. No share price or numbers have been announced yet, but if it does make the predicted figures, it will be owner Jack Ma’s second record IPO, following his $25bn flotation of Alibaba in 2014.

$30billion

Amount Alibaba aims to raise in its IPO

  

Tech is dominating other upcoming headline IPOs, too. Palantir Technologies [PLTR], which launched 17 years ago providing software to help intelligence experts track down terrorists, but now also offers broader big data management, has filed to go public via a direct listing, and will therefore not be raising new capital.

The company’s reported sales rose 25% last year to $742.6m, but with a net loss of $576m. Indeed, Alexander Karp, CEO of Palantir, revealed in filing for the listing that the company has yet to be profitable, largely thanks to R&D typically accounting for around half its revenue. He added that because “we expect our operating expenses to increase… we may not become profitable in the future”.

Karp recently moved Palantir — named for the magical seeing stones in Lord of The Rings — from California to Colorado, and is keen to distance it from the rest of the tech firms in Silicon Valley whose private contracts, he said, are jeopardising America’s defence interests.

 

Will Snowflake’s share price go interstellar?

Elsewhere, cloud-based data warehouse company Snowflake [SNOW] is another tech firm losing money prior to its IPO, but shares could soar in value the moment it goes public, especially given that the data warehouse market is expected to grow 15-fold in the next decade, according to P&S Intelligence. Snowflake posted a $171.3m loss in the first six months of 2020, but sales grew 121% in the three months to July, and when it filed for its IPO in February, its investors — including Sequoia — gave it a value of $12.4bn.

Its revenue and profit have both increased in each of the last eight quarters, with its margins constantly rising — 61.6% in the first half of this year — and Frank Slootman, Snowflake’s CEO, who describes himself as “more marine corps than peace corps”, has an excellent IPO track record.

$171.3million

Snowflake's loss in first half of 2020

  

Six years after joining struggling Data Domain as CEO in 2003, he’d generated a billion dollars in sales, taken it public and sold it — it’s now part of Dell — for $2.4bn. During another six years at ServiceNow, which also included an IPO, he raised its annual revenues from $75m to $1.5bn. No date or details have yet been given for Snowflake’s flotation, but it launched its prospectus on 24 August, suggesting the offering is imminent.

Other intriguing upcoming IPOs include companies that have thrived because of the pandemic. DoorDash, a $16bn on-demand food delivery startup based in San Francisco, was, as of June, the fastest-growing third-party delivery app in the US, with 45% share of the market. It initially — and presciently — filed confidentially in February, just before COVID-19 spiked demand for its services, but no date or details have yet been set

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The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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