In Focus: IPOs 2020
It's that time of year again when investors get bombarded by the names of the unicorns that are going to make us rich and the world better in 2020. The hype doesn't seem to be as much as it's been in the past, but it's still there.
Unfortunately 2019 has taught the people that cover the markets nothing about IPOs, unicorns, and the noise that surrounds them. Here we are in 2020, several months removed from the WeWork debacle, and publications are still telling investors about companies that have high expectations for growth, but low expectations for profits.
It's unfair to put the results of all of 2019's IPOs on a small few. There were hundreds of companies that went public, but we're only discussing a little more than a dozen here. The company's we've isolated were newsworthy companies, and companies that the markets were looking forward to seeing go public.
Hindsight is 20/20, but time last year and even in 2018 people were waiting on Uber, Lyft (LYFT), Pinterest (PINS), Slack (WORK), and CloudFare (NET), which all closed the year down from their IPO prices. On the flip side, publications gave very little love to Zoom Video (ZM) and Beyond Meat (BYND) to start 2019, and those were the companies that ended 2019 as wins for investors.
In 2019 around this time we put together a list of companies that markets had favored for 2019 IPOS.
Robinhood, Palantir, Rackspace, AirBnb, and Postmates didn't go public in 2019, and WeWork's attempt to go public was a disaster that resulted in the company pulling the plug on its IPO and firing its CEO.
For context, we liked Uber and Lyft in 2019. We loved AirBnB and Beyond Meat at the start of 2019. Beyond Meat exceeded expectations, but sadly we were on the sidelines when the stock shot up like a rocket.
The 2020 IPO market looks very similar to the 2019 IPO market. There are companies with names you've likely heard of before. There are companies that have been growing rapidly that you may have never heard of before, and there are a few head scratchers, companies that will lead you to ask yourself, "Should this be a publicly traded company?"
One of the first out the gate in 2020 was Casper Mattress. A quick review of the company's paperwork revealed a company that grew revenue from $250 million in 2017 to $379 million in 2018, but net losses increased from $73 million to $94 million due to the company's heavy emphasis on marketing. In 2018, the company spent about a third of its revenue on marketing.
But I applaud Casper for their bravery. In the post WeWork environment, to admit that your company will continue to lose money in the future with no real timetable of when the company will be profitable takes guts.
Unlike 2019, I have no like or love list for the 2020 potential IPOs. I was once a big fan of AirBnB, but my love has changed over the year.
My issues with AirBnB is that relies on ordinary people to be unbiased, non-judgmental, not prejudice, not racists, not homophobic, etc, AirBnB relies on people who offer their homes to the service to behave like a business, and many people aren't capable of behaving like a business.
When a traveler books a room at the Sheraton, if they show up at the front desk, Black, White, Hispanic, Asian, skinny, fat, short, tall, gay, straight, Christian, or Muslim, the Sheraton clerk will check them in if they have their reservation information and their credit card is accepted. That's not the case with AirBnB right now, but to the company's credit they are trying to combat the issue.
What I'd like to see is what many people don't want to see for AirBnB. I'd like to see more business people, professional landlords or property managers become AirBnB suppliers, I may jump back on the bandwagon if that happens.
Another reason I'm not all in on the 2020 IPOs is because I think there is some value in 2019. I'm still a big believer in Uber, and believe that over time its shares will trade much higher. I'm also big on Slack, which a year ago was a darling, but is now being treated like an ugly duckling. While I've not purchased a share yet, I've spent time asking friends and family who use the service how they feel about it, and it's been nothing but positive things said.
There is a fantasy that investment related publications and big Wall Street banks paint about IPOs. They put out the ideal that if you had invested in Google (GOOGL) or Netflix (NFLX) or Amazon (AMZN) or Facebook (FB) or Beyond Meat (BYND) you would be super rich and that these wins are synonymous with IPOs. But the reality is there have been many terrible companies that have gone public between Amazon and Beyond Meat, and the great companies don't happen all the time. The hard reality is that these terrible companies are going public because they need public money, because they've tapped the private well dry, and private investors can no longer justify putting more money into a company with no path to profitability. Investors should be weary in 2020. Before buying an IPO in 2020, take off the goggles that shine a halo on everything and look at the nitty gritty details of these companies before you invest.