In over a decade of investing experience, I have deployed various strategies to ensure that my portfolio returns beat the index. Of course, it’s a big challenge to consistently beat the index. However, one strategy that has always worked is to keep some liquidity aside for initial public offerings. If we look at the Renaissance IPO Index, we see that it has outperformed the S&P 500 index over a one-year, three-year and five-year period. Therefore, there is a strong case for investing in initial public offerings (IPOs).
Some of the recent IPOs have also seen blockbuster listing gains. As an example, Bumble (NASDAQ:BMBL) IPO was priced at $43, and BMBL stock touched a listing high of $76. Similarly, Roblox (NYSE:RBLX) IPO was priced at $45, and RBLX stock currently trades at $76.
As I write this, Coinbase (NASDAQ:COIN) is trading at $328. The cryptocurrency exchange platform is the latest among blockbuster IPOs. With Bitcoin (CCC:BTC-USD) trading at $63,000 and given the rising adoption of cryptocurrencies, COIN stock looks attractive for the long term.
Overall, careful selection from among an ocean of IPOs can help investors mop up quick gains. With U.S. equities trading near all-time highs, it’s very likely that the IPO market will remain active.
Let’s discuss some potential IPOs in the current year that can provide investors with healthy listing gains. In addition, I believe that theses seven potential IPOs are from companies that might be worth considering for your long-term portfolio.
- Rivian Automotive
- DoubleVerify Holdings
IPOs to Set Your Sights On: UiPath
UiPath is an automation software maker planning to raise $1.1 billion from its U.S. initial public offering. The IPO has a price range of $43 to $50. At the top end of the price range, the company will list at a market capitalization of $25.8 billion.
Going back to the business model, the company designs robots for mundane and repeatable work. The company also provides robot assistants to empower the human workforce. Considering the company’s growth, I believe that the IPO deserves a closer look.
For fiscal year 2021 (year ended January 2021), the company reported revenue of $580.4 million, which was higher by 65% on a year-over-year basis. The company’s net loss also narrowed to $92.4 million from $519.9 million. Given the growth trajectory, it’s likely that the company will be profitable in the current year.
It’s also worth noting that the company had 6,009 customers as of January 2020. By January 2021, the number of customers increased to 7,968. With aggressive customer addition and a dollar-based net retention rate of 145%, the company is positioned for strong cash flows in the coming years.
Overall, automation in the workplace is still at an early stage of growth. With global presence, UiPath is positioned to deliver strong top-line growth. Among the crowd of IPOs, UiPath seems attractive.
Instacart is another interesting IPO that might be in the cards. The grocery-delivery app has seen significant growth in demand after the pandemic, and it might just be the right time to initiate an IPO.
In March 2021, Instacart raised $265 million from its existing investors, which implies a company valuation of $39 billion. It’s worth noting that the last time the company raised funds, the valuation was pegged at $17.8 billion. Therefore, the pandemic-driven surge in demand has boosted valuations significantly.
However, another March 2021 report suggests that Instacart might be looking at going public through a direct listing. Investment bankers are estimating that the company could be valued by the stock market at more than $50 billion.
I would also add that the company intends to use the recently raised $265 million to increase the corporate headcount by 50% in FY2021. This, in itself, is an indication of the growth the company expects in the coming years.
There is plenty of news and speculation around Instacart. However, an IPO would certainly be worth considering, and investors can expect healthy gains from the listing premium.
According to a Bloomberg report, Rivian is likely to go public by September 2021 at a valuation of $50 billion. Rivian Automotive is backed by Amazon (NASDAQ:AMZN) and Ford (NYSE:F). If the IPO does happen, the company is likely to be among the most exciting names in the electric vehicle (EV) industry.
In January 2021, Rivian announced a $2.65 billion investment round. With this, the company has raised $8 billion since FY2019. An IPO seems very likely, as the current year is critical for the company in terms of product launches.
Production and U.S. deliveries of the R1T pick-up are scheduled for June 2021. The pick-up is coming at a base price of $67,500. Further, the R1S SUV delivery is likely to commence in August 2021 with the base price of $70,000. It’s worth noting that Rivian also has an order from Amazon to build 100,000 custom electric delivery vans by 2030.
Rivian also is planning a network of charging stations and Tesla (NASDAQ:TSLA) style showrooms in several cities. Therefore, with a pipeline of launches and investments, it’s very likely that Rivian will need additional funding. Among this list of potential IPOs, I would be most excited about Rivian Automotive.
Another big potential IPO to watch is Robinhood. Last month, the company said that it has confidentially filed for an IPO. The company is likely to go public in late Q2 2021 at an estimated valuation of $40 billion.
After the GameStop (NYSE:GME) saga, Vladimir Tenev, CEO of Robinhood Markets, told Congress in a written testimony that the company has 13 million registered users. The testimony also talked about Robinhood making money from payment for order flow.
According to CNBC, “Robinhood attracts the highest rate for equity trades, according to the documents, at 17 cents per hundred shares. Charles Schwab, by comparison, makes 11 cents per hundred shares.”
In terms of the growth outlook, I am positive on Robinhood. It’s worth noting that expansionary monetary policies are likely to sustain through FY2023. Easy money is likely to ensure that markets continue to trade at premium valuations. As long as investment sentiment remains bullish, brokerages like Robinhood stand to benefit.
Therefore, the IPO is worth considering. Payment for order flow is likely to continue driving growth for Robinhood.
With the novel coronavirus pandemic still impacting lives, there is increasing focus on health and wellness. This is a key reason to select Bountiful from among the upcoming IPOs. According to reports, the company is seeking valuation of over $6 billion.
As an overview, the company is a pure-play in the nutritional supplements market. This includes vitamins, supplements, protein bars and beauty products. According to the company’s prospectus, global retail sales in the nutrition category were more than $137 billion in FY2020. With steady growth in sales, there is a big addressable market.
From a financial perspective, the company reported sales of $2.1 billion in FY2020. Further, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the same period was $302 million, which implies a healthy EBITDA margin of 14.6%.
The company has also been generating positive operating cash flows (OCF) over the last two years. In FY2019, OCF was $86.7 million and cash flows increased to $195.4 million last year. As key margins expand, the company looks well-positioned to deliver higher cash flows.
Bountiful derived $275 million in revenue last year from international markets. Global presence, omni-channel sales and market leadership in the immunity and supplements category are some long-term growth triggers.
If speculations are true, Stripe might be among the best IPOs to consider this year. The company’s valuation has tripled in less than a year to $95 billion.
As an overview, Stripe is a financial service and SaaS (Software-as-a-Service) company. It has presence in 120 countries, with users including the likes of Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon, Microsoft (NASDAQ:MSFT) and Shopify (NYSE:SHOP), among others.
Stripe has also been using the inorganic route for expansion. In October 2020, the company acquired Paystack, which is likely to help the company make inroads in the African market. A potential IPO can help in triggering organic and inorganic growth.
In terms of growth potential, Stripe mentions that only 3% of global commerce happens online, even with the rapid rise in internet economy. With a vast global addressable market, the company has potential for strong growth in the coming years.
Among relatively small IPOs, DoubleVerify looks interesting. The company’s IPO price is likely in the range of $24 to $27, which will value DoubleVerify at $4.2 billion.
As an overview, the company has a software platform for digital media measurement and analytics. The company protects advertisers from fraud. Currently, the company measures 5 billion transactions daily to ensure that advertisers don’t waste their investment on digital impressions that are not brand safe.
In FY2020, DoubleVerify reported revenue of $244 million, which was higher by 34% on a year-over-year basis. An important point to note is that the pandemic has accelerated online business. This has translated into an increase in digital ad spending. Considering this factor, it’s very likely that the company’s growth will accelerate in the coming years.
Another important point from a value-creation perspective is that the company reported an EBITDA margin of 30% in FY2020. The business model seems profitable, and as top-line growth sustains, the company is well-positioned to deliver healthy cash flows.
DoubleVerify has more than 1,000 advertisers and partners as of FY2020. However, the company believes that the addressable market for its core solutions is less than 25% penetrated. This leaves ample headroom for growth.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.