- The IPO market slowed down slightly in 2015, and that trend is expected to endure in 2016.
- Lyft, Stripe, and Pivotal are my top selections for 2016 among the many potential candidates.
- Other candidates may include Palantir, AppNexus, Snapchat, and Buzzfeed.
In 2015, the U.S. IPO market experienced some slowdown, with 170 offerings and $30B in total proceeds, which was raised mainly by healthcare companies, as shown in the chart below. Last year, the public equity market suffered from increased volatility due to macro trends like the Fed rate hike, the commodities decline, and weakness in the Chinese economy. On top of these macroeconomic trends, which drove many companies to halt their IPO plans, there were disappointing results for high-profile unicorn IPOs like Square (NYSE:SQ), Box (NYSE:BOX), and Pure Storage (NYSE:PSTG), forcing prominent unicorns to remain private and raise more funds in the private equity market.
As we are turning into 2016, with a number of IPOs already lining up, I believe there are a number of possible tech IPOs that investors should keep on their radars. I think that a number of prominent tech unicorns will go public this year for various reasons, and that will allow investors interesting entry points into rapidly growing markets.
The ride-hailing industry receives a lot of attention when Uber valuation skyrockets and crosses the $50B line and when Internet giants like Alibaba (NYSE:BABA), Tencent (OTC:TCEHY) and Baidu (NASDAQ:BIDU) actively penetrate the market. As I discussed in earlier articles, the global ride-hailing industry is led by two forces: One player is the well-known Uber that slowly penetrates each country while struggling with legal difficulties and local barriers, and the other less-known player is the Did Kuaidi/Lyft/Ola/GrabTaxi network. Didi Kuaidi is a Chinese initiative by Alibaba and Tencent that leads the local market and fiercely competes with the Baidu-backed Uber China. To compete with Uber worldwide, Didi Kuaidi invests directly and through Alibaba and Tencent in other local services like Lyft in the U.S., Ola Cabs in India, GrabTaxi in Singapore and other smaller European companies.
Forming this network allows the different players to block Uber in their local market and present themselves as a local alternative that fight the global expansion of the Uber Corporation. The U.S. arm of this wide-spread network, Lyft, just recently raised $1B in a massive funding round from General Motors (NYSE:GM), Alibaba, Didi Kuaidi, Janus Capital, and the Saudi investment firm Kingdom Holding Company. This huge round puts Lyft on the same line of Uber and Didi Kuaidi that only recently raised similar rounds to support their expansion. As mentioned in an earlier article, Uber plans to go public in 2017, and Lyft IPO is expected to precede that to gain from the increased interest in the ride-hailing industry that might be not feasible once Uber is public.
E-payments are one of the hottest trends of the financial and technology sectors these days. The financial sector benefits from increasing payment volume that is translated into transaction fee income, and technology companies are looking into this market as a non-core business in which they could add value for investors and use it to increase their ecosystem. New players like Apple (NASDAQ:AAPL) Pay, Samsung Electronics (OTC:SSNLF) Pay and Alphabet Inc-C (NASDAQ:GOOG) Android Pay joined this crowded market last year to compete with Square, Paypal Holdings (NASDAQ:PYPL), Stripe, and Dwolla.
Even though Square had a very disappointing IPO, the e-payment market is growing, and investors look for more investment vehicles into this market as we saw with the introduction of the PureFunds ISE Mobile Payments ETF (NYSEARCA:IPAY) last year. Stripe is a central player in the e-payments market, and its IPO will attract a lot of attention from investors if the company does not get acquired first by one of the bigger players. Stripe could offer an attractive alternative to FinTech investments like Square, PayPal and LendingClub (NYSE:LC).
SecureWorks, Pivotal, and Virtustream IPO
The Dell-EMC deal is expected to be closed during the first half of 2016, and its ricochets are supposed to start hitting the market in the first quarter. The merged company has already announced taking Dell’s cybersecurity arm, SecureWorks (SCWX), public as described in an earlier article. Other cybersecurity and enterprise software initiatives like Pivotal, Virtustream, and RSA can quickly follow SecureWorks as a means to improve efficiency and lower operating costs in the new massive computing giant.
While I don’t believe that SecureWorks IPO offers an attractive investment opportunity to investors, Pivotal, Virtustream, and RSA might be an entirely different story. Each one of these companies has a very strong brand and market positioning and could serve as a solid diversification method against holding the cybersecurity giants like Check Point Software (NASDAQ:CHKP), Symantec (NASDAQ:SYMC), or Palo Alto Networks (NYSE:PANW).
This year is expected to bring some interesting IPOs such as those that were mentioned above. There are many other prominent tech IPOs like Snapchat, AppNexus, Palantir, and Buzzfeed that could take place this year—however, I believe these have a lower probability of happening and might offer less appealing terms to investors. The IPOs mentioned above should be on the radar of every investor to gain significant returns on these emerging companies.