Consumer companies looking to go public in 2021 are likely to enter a bustling IPO market, experts say, following the trading debuts of more companies in the sector during 2020 than any of the previous five years.
Airbnb Inc., DoorDash Inc. and others helped make 2020 a brisk year for IPOs as public valuations defied the coronavirus-driven hit to the economy. Buoyed by hope the pandemic could be ending soon, Biden's election to the White House and low interest rates, investor enthusiasm soared in 2020. That enthusiasm helped drive up public valuations that made it cheaper to raise capital on the public market compared to the private one, experts say.
"You don't want to sit on the sideline and miss out," Robert Lambert, an investment strategist with Strategic Wealth Partners, said in an interview. "More companies are just rushing to take advantage of a red-hot market."
Maplebear Inc., which does business as Instacart, Poshmark Inc. and other companies that have filed for IPOs but have yet to debut could be among those that choose to go public in 2021. The high valuations of Airbnb, DoorDash and others following their trading debuts contributed to a snowball effect that helped push more private companies to try to go public, Lambert said.
"We're in one of those boom periods," James Angel, a Georgetown University professor of finance, said in an interview. "Right now public markets are saying, 'Hey, we've got the cash — come and get it.'"
A record number of consumer companies got the message: 43 completed IPOs on major U.S. exchanges in 2020, well outpacing single-year totals from the prior five years, according to S&P Global Market Intelligence.
Dashing for it
Consumer companies raised a combined $19.57 billion in proceeds through IPOs on the New York Stock Exchange and Nasdaq, according to Market Intelligence. Among those, internet and direct marketing retail companies like DoorDash and ContextLogic Inc. raised a combined $6.11 billion, more than any other industry in the sector. ContextLogic is the parent company of Wish, an e-commerce platform that connects merchants and consumers. ContextLogic and DoorDash both declined to comment due to SEC quiet period restrictions.
There tend to be more IPO issuances when public valuation multiples exceed private valuation multiples, Chris Malik, a managing director at KeyBanc Capital Markets, said in an email. In 2021, the general trends will initially be the same: Institutional and retail investors will look to put cash to work in a low-interest-rate environment, and investors will continue to look for growth stories or companies they are familiar with, Malik said. All this will on balance aid companies that benefit from the work-from-home trend or are focused on solving the current healthcare crisis, Malik said.
"Given robust public equity valuations and volatility that is trending lower, I expect equity issuance to continue through the end of the first quarter and possibly beyond," Malik said.
Instacart, Poshmark and Bumble Trading Inc. are among the most anticipated consumer-facing IPOs of 2021, though these companies have a tech spin, which will likely be the larger market driver, Christina Roupas, co-chair of the Capital Markets Practice at Winston & Strawn, said in an email.
"Consumer-facing companies tend to have more brand recognition and appeal to retail investors, which may drive market excitement around IPOs," Roupas said. "However, retail investors typically comprise only a very small percentage of IPO buyers."
Instacart, a grocery delivery and pick-up service, is reportedly working with Goldman Sachs Group Inc. to lead its IPO plans. Maplebear and Goldman Sachs declined to comment. The online shopping site Poshmark filed Dec. 17, 2020, for an IPO and declined to comment to Market Intelligence, citing a quiet period required by regulators. Bumble operates the Bumble dating app and is reportedly planning to go public in February. Bumble did not respond to a press inquiry.
Bark & Co, the owner of the Barkbox subscription service for dogs, plans to go public through a merger with a special purpose acquisition company. Bark & Co. declined to comment. Cole Haan LLC confidentially filed for its IPO in October 2019, and the U.S. shoe and apparel company made its plans public in February 2020. Cole Haan did not respond to a press inquiry.
Outside the consumer sector, Coinbase Global Inc., a cryptocurrency dealer, confidentially filed for an IPO on Dec. 17, 2020, while the stock trading platform Robinhood Markets Inc. is reportedly exploring a market debut. Robinhood declined to comment and Coinbase did not respond to a press inquiry.
Pausing for thought
Before the IPO market heated up in 2020, the onset of the pandemic and sinking oil markets cast uncertainty over just how many companies would go public last year.
A stable equity market that is trading neutral-to-positive is important when marketing an IPO, Malik said. IPO activity increased in 2020 once volatility began to subside and equities traded up significantly in the latter half of 2020, he said.
"Once the IPO window re-opened following the initial COVID shutdown, investors were hungry for IPOs that they believed could survive (and even thrive) in a post-pandemic world," Roupas of Winston & Strawn said. "This explains the high volume of healthcare and tech IPOs in 2020."
Airbnb and DoorDash had the biggest and buzziest IPOs among consumer companies. Airbnb raised $3.83 billion from its public debut on Nasdaq on Dec. 10, 2020, and DoorDash raised $3.37 billion after its shares began trading on the NYSE on Dec. 9, 2020. The pandemic has hit both companies in opposite ways: Airbnb bookings dropped by more than a third in the first nine months of 2019, while DoorDash is gaining from a boom in online food delivery as restaurants continue to operate under tight restrictions aimed at curbing infections.
The digital lender Affirm Holdings Inc. and Roblox Corp., an online gaming platform, reportedly delayed plans for separate December IPOs after shares of Airbnb and DoorDash popped on their first days of trading. The delays by Affirm and Roblox were reportedly done so the companies could possibly sell more shares. Roblox and Affirm declined to comment.
Among the other high-value IPOs in the sector during 2020 were China-based electric-vehicle makers XPeng Inc., which raised $1.72 billion in its Aug. 26, 2020, debut, and Li Auto Inc., which posted $1.09 billion from its July 29, 2020, offering. Earlier in the year, Reynolds Consumer Products Inc., the company behind Reynolds Wrap and Hefty trash bags, raised $1.41 billion in its Jan. 30, 2020, IPO. The companies did not respond to requests for comment from Market Intelligence.
Onward and upward
Experts anticipate IPO activity to continue apace in 2021, though some valuations could fall given they are already so high.
"Companies are coming to market with valuations like we've never seen," Lambert said. "I don't see much room for expansion."
Two other factors could help push more privately held companies into public markets in 2021: The SEC on Dec. 22, 2020, gave final approval to a plan to allow direct listings, an alternative to traditional IPOs. And more than 200 SPACs that went public in 2020 will be hunting for deals in the new year, Jay Ritter, a University of Florida professor of finance, said in an interview.
"As long as stock markets stay up or continue to increase even further, I think there will be a continued flow of private companies into the public space," Ritter said. "In 2021, we could see not only traditional IPOs but a lot of private companies entering the public market via merging with a SPAC."