It fashioned itself as a financial engine of and for the people. A tool for the masses and stock dabblers. A way to place stock trading in the hands of everyday folk. Trading platform Robinhood has filed to go public later this year, despite having been excoriated for restricting trading of GameStop stocks in January. But here’s the kicker: The estimated valuation of this upstart startup is an eye-watering $40 billion, making it very much a big league player.
In today’s Daily Dose, we take you on a journey into the white-hot world of initial public offerings, introduce the fresh new prospects on savvy investors’ minds and serve you juicy insights into what it’s all about.
Josefina Salomon, Senior Editor
we’re about to blow up
This rags-to-riches, commission-free platform made global headlines when millions of investors loaded up on stocks of GameStop, an ailing video game retailer, to save it from going bust. But for some, this wasn’t a happy story. Wall Street short sellers, for one, lost billions along the way and experienced investors accused the platform of using dirty tactics to make money. Even financial regulators got involved, sanctioning Robinhood for failing to fully inform its customers of the risks behind trading and of the company’s own dealings with Wall Street. None of this has deterred CEO Vlad Tenev from steaming ahead andfiling to take the business public, which is expected to happen later this year. With a user base of nearly 18 million backed by a multibillion-dollar valuation, Robinhood’s might seem like a very attractive IPO. But enthusiasts beware – this company’s name and fame might just make it unsuitable for the risk-averse.
2. Universal Music
One of the most well-known names on this year’s IPO list, the world’s largest music conglomerate hasannounced that it is going public. The development comes after long and difficult negotiations among shareholders, who were fighting for control of the business. The home of artists ranging from The Beatles to Lady Gaga, Universal is reported to account for around 30% of global music sales and is growing, giving it increasing leverage with streaming services. The label is due to make its debut on Amsterdam’s Euronext stock exchange in September, and is expected to be valued at nearly $40 billion.
Leveraging the anonymity mainstream social media giants are often accused of facilitating, Nextdoor offers a place for neighbors to interact online. Now available in 11 countries and used by almost a third of U.S. households — the company this month announced its plans to go public by the end of the year via a blank-check special purpose acquisition company (SPAC) merger in an arrangement valued at $4.3 billion. But is it a worthy investment? Beware of some red flags. The hyper-local app faces increasing competition, including from Facebook, and the risk that in a more mobile, post-pandemic world, people might not be as attached to their home turf.
A startup born of a demand for better international communications that has since become much more, Discord is a messaging system integrating video and voice calls. Released in 2015, it’s been popular among gamers in part because it was integrated into Microsoft’s Xbox platform in 2018. Since then, aided by the demands of the COVID-19 world, Discord has expanded beyond gaming. Today, with an estimated valuation of around $10 billion, reports that the company might go public are already generating a lot of buzz.
Banking on what looks like a never ending list of wins, the San Francisco- and Dublin-based payment process startup is set to break new records. The company, which has been valued at a whopping $95 billion (making it the current most valuable U.S. startup) is profiting from an insatiable demand for e-commerce. Although no date has been set for its IPO, the company has already taken the first steps toward what promises to be another record-breaking listing.
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Take all the complex acronyms and chatter out of the equation and the recipe for a successful IPO is relatively simple: If a company works, its stock works. What makes a companyattractive? It doesn’t take an MBA to understand: Offer something customers need or want — think how many times you’ve checked Facebook today — come up with a unique business model (Amazon’s diversification is a good one) and establish a strong brand. This tried and tested formula has proven a path to long-term success for giants such asApple and Uber. Newer companies that have followed a similar formula, such as Snowflake and Airbnb, both of which went public in 2020, are expected to have a bright future.
2. Up, Up, Up (and Down)
IPOs are Wall Street’s way to predict what your life, and mine, will look like in the future: how we will talk to each other, what we will do in our homes, what will be hot and what will not. During the dot-com boom of the late 1990s, many cash-strapped startups rushed to issue IPOs to raise funds. At the time, many believed they were on the path to financial heaven. The bloodbath that transpired proved anything but. Tech companies at the time had ideas that promised to change the world, but most lacked solid business plans or even a track record of profit-making. It’s a lesson that resonates today: Historically, share prices have declined during the five years after most IPOs.
3. New Boom
Today’s boom is very much linked to the world as it exists around us: Many successful startups have zeroed in on our work-from-home lives, which rely on delivery services, cloud storage and even online dating. Many of those same startups are fueling the new wave of IPOs. When compared to their 1990s counterparts, the people behind today’s blockbuster names benefit from, among other things, a much larger potential market base (thank you, internet). In thefirst quarter of this year 727 IPOs were launched worldwide, raising nearly $203 billion. Incredibly, that’s more than triple the number of IPOs in the first quarter of 2020.
4. Warning Ahead
However, analysts are cautioning that although companies currently leading the IPO boom are financially strong, there is a risk the rush might burst a bubble. For companies going public, the market can be notoriously volatile: More than 60% of ventures that went public between 1975 and 2011 sawnegative returns after five years. While a shortage of shares to meet investors’ voracious demand has been credited with driving up prices, the bumper crop of IPOs will boost that supply and possibly cool things off. And company insiders typically can’t sell shares until six months after an IPO, so the last quarter of 2021 could see even more shares entering circulation. Watch this space.
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There is more than one reason to pay attention to this 32-year-old entrepreneur. In February, the founder of the women-first dating app Bumble became the youngest female CEO totake a company public, and is also the world’syoungest self-made female billionaire, currently worth $1.3 billion. But the entrepreneur says it’s not all about money. The day her venture went public in February, Wolfe Herd rang the Nasdaq bell carrying her baby. As a busy mother, she’s also not against taking the occasional afternoon off work.
2. Apoorva Mehta
The India-born, San Francisco-based entrepreneur isone to watch in 2021. Mehta is the brains behind the grocery delivery service Instacart that’s due to debut on the stock exchange later this year. A major hit during the COVID-19 pandemic, the company is now boasting a valuation of $39 billion. What’s Mehta’s superpower? A never-give-up attitude: He went through20 product ideas before landing on the Instacart model that has catapulted him to success.
3. Vlad Tenev
Thinking about experimenting with IPO stock this year? Then Tenev is worth your attention. The Robinhood CEO has gone from little-known entrepreneur to villain, was questioned by the House Committee of Financial Services in February, and is now heading toward arguably the most highly-anticipated IPO of the year. The Stanford graduate, who moved to the U.S. from Bulgaria with his parents at the age of 5, is facing mounting pressure to get regulators (and investors) on his side.
The stock market has for decades been the playground of boys in suits, but things are changing fast. Thanks to apps and online trading platforms as well as online forums, even the completely uninitiated can buy and sell shares and earn money in the process. Plus you can carefully research those investments online to minimize the risk that comes with uninformed dabbling. While the GameStop controversy opened up a debate over theimpact of mass buying campaigns, some experts say these developments are an inevitable part of life in the internet age.
what, you didn’t know?
1. Yes, She Can
Although gender diversity is still lacking in boardrooms across industries, some newcomers bucked that shameful trend in 2021. Top of the list is the aforementioned Bumble, which — perhaps unsurprisingly for the company behind the app that put women in charge of dating — featuresa board that is nearly 75% female. At the opposite end of the spectrum, at least three of the 2021 newcomers do not have any female board members.
2. Wall Street Goes Online
WallStreetBets, the Reddit forum that served as “ground zero” during January’s GameStop saga, has become a victim of its own success. With members increasing from 1 million to 10.7 million (and counting) since the beginning of the year, users are complaining that the group’s overwhelmed with infighting and what some suspect are big-time investors trying to goose stocks they already own.
3. Not for Everybody
If you count yourself among the risk-averse who can’t be tempted by stocks, you’re not alone. Take, for example, Dell, whichwent through a period as a private company between 2013 and 2018 in order to enact a range of internal changes before relisting. Supermarket giant Aldi has always been privately held, and thanks to its business model, has grown steadily since its founding in Germany in 1946. Also with fingers in the food business,Cargill, the largest private company in the U.S. and one of the most important players in the global agricultural industry, has remained a close-knit, if massive, family business.
4. But If It Is for You . . .
Still thinking of getting into stocks?There are somesimple rules you should follow. First, ask yourself whether you want to invest long term or just dip in and out. This will help you determine the type of company you should back with your cash. In lower-risk investments, watch for red flags such as a prior bankruptcy. Also be wary of high leadership turnover (a sure sign that something is not quite right) or a history of lawsuits (which often greatly impact cash flow). Planning and diversifying, of course, are key.