It may turn out to be a banner year for initial public offerings, led by popular messaging app Slack.
Slack said this week it had registered for a direct listing of its stock on the public market. It’s the first of what investors expect will be a rash of highly anticipated IPOs this year, including Uber, Lyft, Airbnb and Pinterest.
Because Slack’s registration listing is confidential, it’s unclear what the company is eyeballing for a valuation. Nevertheless, a recent round of funding gave the company a value of $7 billion, according to venture-funding site Crunchbase.
“2019 could end up being a blockbuster year for tech IPOs,” said CB Insights managing intelligence analyst Matthew Wong. “Airbnb, Pinterest and Slack, they would be among the largest venture-backed IPOs we’ve really seen in the last 10 years.”
He added, “That said, there’s the potential they may not go public in 2019,” depending on issues like the stock market and investor appetite for tech companies.
What’s a direct listing?
Slack’s unconventional approach of relying on a direct listing, which Spotify also used, could broaden its appeal among small investors. A direct listing skips the traditional step of hiring an underwriter — an investment bank such as Goldman Sachs. The underwriter raises new capital and drums up interest in the shares among investors. But in a direct listing, existing shareholders sell their stock directly to new shareholders.
“There’s a fascination with the direct listing, especially after Spotify,” Wong said. A direct listing makes sense for brands with strong consumer awareness, such as Spotify and Slack, he added.
In Spotify’s case, the company wasafter its direct listing, which Spotify said it pursued because it didn’t need to raise money. Instead, current shareholders were able to sell their existing shares and weren’t restricted on when they could do so.
Spotify laid out a number of reasons for listing its shares via a direct offering, including providing equal access to all buyers and sellers. Spotify’s shares had a “reference point,” or a targeted opening price, of $132 each. When the stock started trading, it shot up to more than $165, before losing ground. The shares now trade at about $140 each.
Other 2019 IPOs
Not only the volume of high-profile IPOs may see a boom this year, but also the valuations, according to CB Insights. Uber could be valued at $120 billion, surpassing Facebook’s $104 billion valuation in its 2012 IPO, the research firm said. Airbnb could be valued at at $31 billion, while Pinterest could earn a valuation of $15 billion.
But not all the big IPOs in 2019 will be easily recognized consumer brands, Wong said. The five likeliest tech companies to go public this year are businesses that many people have probably never heard of:
- Cloudflare, a web performance and security company
- Rubrik, a cloud data management company
- Medallia, customer experience management software
- Zoom, cloud videoconferencing services
- Peloton, exercise equipment and media
“We identify that they are most likely to go public,” Wong noted, “although are not necessarily the biggest IPOs.” He added that his company looked at changes such as whether a business hired a new chief financial officer, which can signal preparations for an IPO.