Oxstones Investment Club™By Jon Ogg, 247WallSt,
The mythological unicorn has never been found, but the venture-backed unicorn market continues to amaze and enthrall the business world. These so-called unicorns are the private companies that have raised venture capital with valuations in excess of $1 billion dollars. These also happen to be the ongoing names that excite the public, and they are all either future or potential candidates for initial public offerings (IPOs).
Investors love reading about and chasing hot IPOs. After all, this is where you can invest early in the next Google, Facebook, Amazon and so on. It is also an area where investors can suffer a brutal beating if they lack discipline or make the wrong picks. If you don’t think bubbles can burst, think back to the last tech bubble for Webvan, eToys, TheGlobe and others.
The bull market is nearly seven years old. Investors have grown more cautious, but the reality is that investors of all sizes have bought up stocks on each and every pullback in the past four-year period. Perhaps the biggest question to ask about the IPO market going into 2016 is whether private market valuations are really above the public market valuations. This happened in 2015. Still, companies like Square, Box and others that were unicorns have managed to come public.
24/7 Wall St. has highlighted some of the more well-known unicorn venture-backed companies that may come public in 2016. Not all of them will come public of course, and another international market shock or a stock market sell-off would get in the way. Then there is the notion that the 2016 presidential election cycle may get in the way. Many of the names here are household names, like Uber and Lyft, or Snapchat and Pinterest. Other top names are Airbnb, DocuSign, Dropbox, Palantir, SpaceX, Spotify and Xiaomi.
The IPO market still seems very open to technology and socially oriented IPOs. That is no longer the case for energy (including alternative energy) and recent scandals (or potential scandal) with Theranos, and then drug price pressure from politicians may have dampened interest in the various companies in the biohealth sector.
CB Insights noted earlier in 2015 that there were nearly 150 unicorns valued at a total of more than $500 billion. So what happens when the 2015 IPO market was viewed as a serious disappointmentall around? Maybe all those investment banks on Wall Street can convince the companies that they better come public while the markets can absorb them. Venture backers may even demand that the companies create liquidity events, which could even be buyouts.24/7 Wall St. has given a description on each, added color and statistics if available, discussed recent capital raises and ultimate market valuations and more. These are 11 unicorns that might see IPOs start coming to light in 2016.
Airbnb
The wiki-hotel and house rental model lives on. Recent regulatory efforts to force individual homeowners and rental property owners into accounting and regulatory guidelines as hotels does not seem to be taking hold.
The last round of $1.5 billion in capital supposedly valued Airbnb north of $25 billion. Airbnb does have competition, but it also was last shown to have roughly 1.5 million unique listings around the planet from 30,000 cities and towns in 190 countries.
DocuSign
Being in the online signature business may seem ubiquitous and without any barriers to entry. That is true, but DocuSign made sure that it got its service used by real estate agents and other service providers rapidly. Individuals and companies just love its ease and simplicity.
The company’s prior management comments might sound like DocuSign wants to remain private, but a capital raise north of $200 million for close to a $3 billion valuation in the first half of 2015 might make an IPO more likely ahead. DocuSign now claims to have over 50 million users worldwide, and it has barely scraped the surface in digital transaction management solutions.
Dropbox
The online storage and document-sharing giant may have a cool and easy-to-use application for the smartphone and PC world. Unfortunately, its last $10 billion valuation round may (or may not) be higher than the actual value that the stock market would pay for it today.
If all that unicorn investor math doesn’t add up soon, then investors might start thinking that all of the lesser valued storage companies are just as good as Dropbox. Still, Dropbox claims more than 150,000 businesses use its service and that is no small feat.
Palantir Technologies
The data and IT outfit is considered to be top-notch. In fact, perhaps so top-notch that Palantir supposedly gets to pick its clients. Some controversy earlier in 2015 might have been a source of negative press, but customers and prospective employees still actively seek out Palantir for its expertise. It deals with U.S. intelligence agencies and is reported to even have CIA venture backing, along with other solid names backing under the leadership of Peter Thiel.
News was out in the summer of 2015 that Palantir conducted a $450 million capital raise. New reports have shown that Palantir raised another sum of more than $800 million, with a $20 billion valuation.
Lyft
Uber’s smaller ride-sharing rival reportedly has been in the process of raising up to $1 billion late in 2015 (with the final tally not in, but with about $105 million from Saudi Prince Alwaleed bin Talal’s Kingdom Holding), with valuations talked up in the $5 billion range. While Lyft is smaller than Uber, it could actually trump Uber to the IPO market if it wanted to. In one manner, it would be like the tail wagging the dog, but it could be a coup for its investors and Uber alike.
Lyft seems to have less direct localized groups and governments targeting it than Uber, but it is also in fewer markets for some of its services.
Another social media and photo destination (or online social scrapbooking) site valued supposedly north of $10 billion could come public. Pinterest has solid backers, although maybe forcing people to sign up to see the bulk of things there is limiting. After all, some of us in the public are just social media’d-out!
Maybe Pinterest doesn’t want to be considered social media, but it was happy to indicate that it hit the 100 million user mark in late 2015.
Snapchat
If you did not think the stock market could handle yet another social media outfit coming public, let’s just say that Snapchat remains high in the IPO circles. It now processes literally billions of disappearing pictures and videos around the globe each day. Earlier this year it was supposedly valued at more than $15 billion.
A report from Zacks in December indicated that high-profile hires of late could be signaling a coming IPO. Snapchat’s CEO has even hinted of an IPO earlier in 2015. Do reports of a Fidelity markdown in Snapchat matter much?
SpaceX
This is Elon Musk’s private space technology venture. The cost of launching rockets into space has now been shifted from the government to the private sector. A recently successful launch and return to earth probably just overcame many of the hurdles that have acted as a shadow over the private rocket industry.
SpaceX’s valuations north of $10 billion are up for a wide degree of interpretation. Good news will drive that higher (maybe through the stratosphere), but bad news could crater valuations here. Space may be the final frontier for investors too.
Spotify
Being in online music has been very lucrative for Apple and Sirius XM (or Howard Stern), but the streaming music and music subscription space is rather competitive. Profits in this space are also elusive, but maybe Spotify can overcome that with a base of more than 75 million users.
Spotify is also based in Sweden, so many U.S. investors might feel like they missed out on the boat here, even if it has a good roster of venture backers.
Uber
Wikicab IPO ambitions live on. Uber’s founders might like to remain private, but after valuations went on well above $50 billion, the reality is that the venture backers might not want to wait until after the next recession to cash out. The battle of the contractors versus employees lives on. Do 48% of Uber drivers really have college degrees? If so, they know they are signing a contractor agreement rather than an employment agreement.
The debate over Uber workers/contractors will continue, as will its venue fight by cab drivers and local governments. That could get in the way of valuations, but it has not kept Uber from growing, nor from raising capital. Uber is said to have over a million rides on an average day now.
Xiaomi
The Chinese smartphone and electronic devices maker has been thrown around in IPO circles with valuations north of $40 billion. More recent valuations might be harder to guess today, and the slowing growth in China makes it just that much harder to pinpoint.
Since Xiaomi is Chinese, we’ll leave it up to China and Chinese investors to decide. Oh, and by the way, if this comes public in the United States but not in China, then don’t say you were not warned when it comes to how the company can handle its financial reporting. Also, we would not like to say the MiNote looks like an iPhone or some Android phones (but it does).
One parting word as 2016 arrives. The media and investors should stop using the term “unicorn” for venture-backed companies. If a unicorn does not really exist, then how are there more than 100 “unicorns” with venture capital backing? If there turns out to be another tech bubble (media, social, etc.), investors are going to be pretty miffed that their advisors went investing in mystical beasts.
Tags: Airbnb, chinese cellphone company, chinese ipo, chinese stocks, cloud computing, data analysis, digital transactions, document sharing, DocuSign, dropbox, Elon Musk, entrepreneurship, house sharing, IPOs, Lyft, MiNote, online music, Palantir Technologies, Peter Thiel, Pinterest, ride sharing, share economy, Snapchat, social media, social scrapbooking, space technology, SpaceX, Spotify, start-ups, uber, Venture Capital, wikicab, wikihotel, xiaomi