By Emily Bary
It is typical for companies to delay their initial public offerings when the market for them is weak, but the unprecedented year that is 2020 is ending with companies delaying IPOs because the market is too strong.
Gaming company Roblox Inc. /zigman2/quotes/223883423/composite RBLX -7.08% and lending company Affirm Holdings Inc. /zigman2/quotes/223715966/composite AFRM -5.20% both opted to delay their IPOs that were planned for this December, following big first-day surges for Airbnb Inc. /zigman2/quotes/222990650/composite ABNB -4.22% and DoorDash Inc. /zigman2/quotes/222973991/composite DASH -0.20% shares. The huge initial pops for Airbnb and DoorDash suggest those companies left a lot of money on the table, and Roblox and Affirm are reportedly seeing whether they can better cash in on continuing strong demand for IPOs in 2021.
See also: What you need to know about Roblox and Affirm
The delays were a suitable end to an unbelievable 2020 for IPOs, with young technology companies and blank-check offerings leading to the biggest year for Wall Street debuts since the heyday of the dot-com boom, despite a pandemic. In all, it was the best IPO year in terms of deal count and capital raises since the 1990s, according to data compiled by PricewaterhouseCoopers, with 183 traditional IPOs and 242 SPAC deals raising slightly more than $150 billion in total.
The 2020 IPO market is also notable for the depth of billion-dollar deals, PwC’s IPO lead David Ethridge told MarketWatch. More than 20 companies raked in at least $1 billion through their offerings in 2020, led by Bill Ackman’s $4 billion special purpose acquisition company , or SPAC, and capital raises topping $3 billion from Airbnb, DoorDash and database software company Snowflake Inc. /zigman2/quotes/220991541/composite SNOW -1.88% .
Read: Snowflake and other software companies IPO like its 1999
Few would have predicted that a period accompanied by global economic woes brought on by a pandemic, elevated unemployment and high market volatility would also be highly conducive to IPOs, Ethridge said, but other dynamics could keep the IPO market roaring through 2021, in his view. He points to an accommodative interest-rate policy from the Federal Reserve that’s expected to persist for years, as well as positive developments on the vaccine front that could give the economy a jolt.
By postponing their offerings, Roblox and Affirm have time to file amended paperwork with the Securities and Exchange Commission that could enable them to either sell more shares or sell the same amount of shares for a much higher price, according to James Angel, a finance professor at Georgetown University’s McDonough School of Business. But the companies are in a “high-stakes poker game,” he continued, since the SEC is reportedly backed up with paperwork and there’s no telling how long the IPO market will stay this hot.
Many companies are betting it will stay hot, with a rush of confidential and public IPO filings at the end of 2020 setting up a stacked slate of 2021 IPO candidates. Food-delivery company Instacart, clothing marketplace Poshmark /zigman2/quotes/223776918/composite POSH -17.63% , retail-trading platform Robinhood and software company UiPath are among the hottest names predicted to go public in the year ahead.
Those companies could face many other offers, however, especially from SPACs that have raised billions of dollars in 2020 in hopes of acquiring companies. SPACs proved “the perfect product for the time” as people looked to pour money into the equity markets this year, PwC’s Ethridge said.
Inside a SPAC: Online car seller gives a look at the pandemic’s most popular path to going public
“This is the year of the SPAC,” he told MarketWatch, with 2020 alone accounting for more than half of all SPAC deals over the past decade.
The coming months could feature a “private-to-public pop” in which companies that didn’t plan to IPO for two or so years end up going public via the SPAC route, according to Scott Galloway, a marketing professor at New York University’s Stern School of Business.
“You have $200 billion in capital out there hunting,” he told MarketWatch.
For more: Scott Galloway on why Amazon ‘was invented for the pandemic’
The options companies face as they consider going public were obvious in the case of Postmates, which navigated through SPAC offers, the IPO process and acquisition offers from competitors before deciding to merge with delivery rival Uber Technologies Inc. /zigman2/quotes/211348248/composite UBER +0.46% earlier this year. MKM Partners analyst Rohit Kulkarni expects a “barbell-based approach,” in which smaller tech companies go public through SPACs, larger ones go public through IPOs, and a few large brand-name tech companies consider direct listings, as Palantir Technologies Inc. /zigman2/quotes/221054928/composite PLTR -3.03% used when it went public in September without raising new funds .
The current environment could continue to see more private equity-backed companies come to market as well. A year ago, “people were talking about when we might see a recession, but you don’t hear any talk of that now because of where people see interest-rate policy now,” Ethridge said. That creates a more attractive setup for private-equity companies, in his view, since they normally don’t sell their shares at the time of an IPO but rather look to sell over time at higher prices.
“When you don’t think there’s going to be a recession, that’s a much more amenable forecast,” he said.
Here are some of the companies expected to attempt the 2021 journey to the hot IPO market before it cools down:
The pandemic cast a new shine on some consumer-facing tech companies. Just a year ago, the food-delivery space was viewed as unattractive due to intense competition, a heavy reliance on subsidies and an enduring lack of profits, but DoorDash gained increased prominence with housebound diners during the COVID-19 crisis. Now investors seem upbeat about what the company will be able to do by combining its ballooning user base with a logistics network that could be used for more than just delivery.