After a tepid year in the IPO market, investors are hopeful that 2024 will see a return to form. 2020 and 2021 were record years for deals, as low debt rates bolstered investor interest in startups like Rivian Automotive, Robinhood and Snowflake. But the IPO market plunged in 2022 after the Federal Reserve’s aggressive rate-hiking campaign collapsed investor demand for growth stocks. Take Rivian as an example. In 2021, the electric truck maker opened above $106 per share on its first day of trading, as investors flocked to the startup backed by the likes of Amazon and Ford. It has since fallen to trading around $15 per share. But happier days could be ahead for the IPO market in 2024. Companies that debuted last year met with a mixed reception, but investors are hopeful that Fed rate cuts expected later this year will mean a rebound. of IPOs and ultimately pave the way for a recovery in trading activity. According to Linqto’s 2024 IPO Sentiment Survey released Thursday, just over half (52%) of the 2,500 traders surveyed anticipate a significant recovery in the IPO market this year, suggesting a ” cautious optimism” in the future. “There is a lot more optimism for the IPO market,” said Akshata Bailkeri, head of research at EquityZen, a platform for pre-IPO activity. “2023 was definitely a very different environment. With rates rising and what was happening on a macro and geopolitical level, obviously there weren’t as many IPOs or companies willing to do it.” “But I think we will get to 2024 on a much stronger foundation,” Bailkeri said. The Power of Consumer Brands In the past, the IPO market was saturated with technology offerings, Silicon Valley venture capital-backed companies touting software-as-a-service offerings. Many expect this to continue, especially as artificial intelligence gains prominence as a topic, starting with robotics and automation startups. But this year’s hottest IPOs could be in consumer companies, as both Shein, the Chinese fast fashion giant, and Amer Sports, the maker of Wilson tennis rackets, have declared ambitions to go public. These companies can leverage names that retail investors easily recognize to generate buzz around an IPO. “Knowing the brand name provides some accessibility to how people can view the company and the IPO,” EquityZen’s Bailkeri said. “So that’s potentially a lens from which they’re considering, ‘Okay, people know us, they know what we do, they know what our business model is and what we offer to the public.'” “It is easier”. generate excitement around familiar products that people use day in and day out,” Bailkeri added. Here are some companies that could go public next year. Shein Late last year, Shein confidentially filed for its IPO , gearing up for a debut that could happen as early as this year, CNBC reported. The Chinese fast-fashion retailer was last valued at $66 billion, though that could change. “We don’t know exactly where Shein will decide to value itself, but “There’s talk of it potentially being a little bit higher than the current valuation of $66 billion,” Bailkeri said. “So it’s an interesting story.” No doubt, Shein also faces increased scrutiny from U.S. lawmakers due to its ties to China, and has faced accusations of violating labor laws. Reddit Another major market debut would be social media platform Reddit. This week, Reuters reported that the discussion forum platform plans to launch a public offering initial in March, an effort that would have been in the works for three years. Reddit confidentially filed for an initial public offering (IPO) in 2021. Back then, it was valued at approximately $10 billion. Reuters, citing sources, reported that the company will sell about 10% of its shares in its initial public offering and will agree on a valuation as it gets closer to its debut. Fanatics Fanatics, the American manufacturer and retailer behind licensed sportswear for the National Football League, Formula 1 and other properties, is another consumer company that has declared its ambitions to go public. The firm recently announced Andrew Low Ah Kee, former president of online real estate platform Opendoor Technologies and chief operating officer of GoDaddy, as CEO of Fanatics Commerce. In his previous roles, Low Ah Kee pushed companies into new markets and gained new partners. It’s the kind of appointment EquityZen’s Bailkeri noted he makes as a company expands its C-suite to prepare for a public debut. It’s familiar territory for Low Ah Kee. While at Opendoor, the company made its public debut in 2020 through a special purpose acquisition company, or SPAC. This year, Opendoor stock is trading well below its offering price, and the stock is down another 34% so far in January. Skims Skims, the shapewear brand co-founded by Kim Kardashian, also recently named Andy Muir as chief financial officer. Muir comes to Skims from Nike, where he worked with the Jordan brand. Other consumer names that have declared their public ambitions include Amer Sports, the company behind Wilson tennis rackets, which is seeking a $1 billion initial public offering by the end of January, according to a Reuters report this week citing sources. Liquid Death, a canned water company, and Golden Goose, a sneaker company, are also reported to be potential IPO contenders in 2024. To be sure, the companies’ performance may depend in part on how resilient the consumer is. in 2024, warned Roxanna Islam, director of sector and stock research at VettaFi, a data analysis company. Instacart’s parent company, Maplebear, for example, was poorly received last year, falling more than 7% in 2023. So far in 2024 it is up 9%. “Sustainable profitability” Of course, companies now have more options for raising funds. outside of a traditional IPO, which some investors say could also limit IPO markets in the future. For example, companies that want to remain private longer could explore a possible sale or access secondary markets. In fact, Troy Gayeski, chief market strategist at FS Investments, pointed to data from the U.S. Census Bureau and the World Bank showing that the percentage of public companies has fallen 35% since the mid-1980s, while the percentage of private companies has increased by 35%. 43% during the same time period. At the same time, only 4% of U.S. companies are public, underscoring the opportunity in private markets, Gayeski said. “Ultimately, why go public? You need capital to grow your business, right, that’s the motivation,” Gayeski said. “But if there are both private equity investors and private credit lenders, not only is there no need to raise equity capital from the public markets, but there is no need to raise debt capital from the public markets.” As things stand, companies looking to make their debut this year will find the market markedly different from what it was just a few years ago, when many companies over-promised what they could deliver. Experts warn that investors give more consideration to startups with strong balance sheets, healthy growth expectations and customer relationships, as well as the right management teams. In other words, companies will have to clear a higher bar and will have to defend their valuations in a world of higher interest rates. “We’ve sort of moved away from that high-reward (short-term, high-reward) seeking behavior,” VettaFi’s Islam said. “I think we’re looking more toward companies that have sustainable profitability.” Still, the performance of IPOs this year may ultimately have to do with the performance of the former, as their reception may indicate how they will fare with supporters. “When one goes really well, that leads to several others,” EquityZen’s Bailkeri said, adding, “That’s what we would be looking for.”
