IPOs were red-hot in 2020. They're finishing the year with a revenue record of $140 billion. The last record was in 1999 with $108 billion.
In case you missed out, we've got seven monster IPOs to look forward to in 2021:
We recently witnessed the biggest software IPO in history as Snowflake Inc. (NASDAQ: SNOW) sold 28 million shares for a total of $3.4 billion. The share price bolted out of the gate, more than 150%, from $120 to above $300.
There are some even more exciting IPOs to watch for 2021. These could go public as early as Q1.
How to Think About IPO Investing in 2021
IPO investing can be tricky, since you're relying on a lot of past information to judge the future. That's obviously not going to give you any clear answers on whether a stock is a buy or not down the road.
However, you can get some idea of where the company is at in its growth ahead of an IPO to for a rough estimate of its chances.
If you trust the management and find out the company has grown its revenue significantly in the last few years, it might be out of the "growth phase." Its motivation for going public would be more than a mere cash grab.
Another thing to consider is always the expected valuation and price. These can either tell a true story or be immensely overblown - often the latter - by hype. As a result, you often see a drop after the IPO.
You could also have the opposite problem. The stock could open near or below expectations, which could spark negative sentiment.
That's why it never hurts to give the stock some breathing room before rushing in.
To learn more about IPO investing, check out our comprehensive IPO investing guide.
Now, let's get into these 2021 IPOs.
Instacart IPO Seizes on Digital Shopping Trends
An Instacart IPO is most likely underway in early 2021. It's a grocery shopping and delivery app.
The company had massive success as delivery became the primary mode of grocery shopping during the pandemic lockdowns.
Thanks to the boost, this could be one of the biggest IPOs in 2021.
It will go toe to toe with DoorDash, since it recently also expanded to grocery delivery.
It's important to remember, however, that many conditions surrounding its IPO likely won't be the same. There are three things that separate Instacart from DoorDash, and it will be interesting to see how it all pans out.
WARNING: It's one of the most traded stocks on the market every day - make sure it's nowhere near your portfolio. WATCH NOW.
For one, Instacart was founded by a former Amazon.com Inc. (NASDAQ: AMZN) employee, likely with some insight into the Prime delivery business. This could be a logistical leg-up for Instacart in that battle.
Another leg-up would be that Instacart was founded a year ahead of DoorDash. This might seem like a marginal difference, but don't underestimate the benefit of being a first-mover. The amount of ground you can cover in a year is significant.
Where it is truly a first-mover is in the "shopping" aspect of its business. While DoorDash only added groceries to its list this year, Instacart was the pioneer.
It has several of the familiar problems faced by gig stocks like DoorDash, Uber Inc. (NASDAQ: UBER), and Lyft Inc. (NASDAQ: LYFT). Yet, the company had an impressive 2020 and now could outperform its direct and indirect competition after a successful IPO...
Should You Buy Instacart Stock?
Instacart was valued at $3.4 billion in 2017. Since then, the company has rocketed to a $17.7 billion valuation.
Its demand grew 274% year over year due to the pandemic. Since a successful vaccine will take time to distribute, we could still be looking at similar growth in the near future.
Its latest numbers put the company close behind retail giant Walmart in online deliveries.
Instacart has been working all 2020 to streamline its order process with an "order ahead" feature and similar options to bolster its sales volume.
In addition, the company is partnered with over 500 retailers, including Walmart. This could give the company increased exposure to the market.
Unfortunately, it still suffers all the pressures you would expect from a California gig stock. The state passed a January 2020 law capping the number of contractors a corporation can hire.
Even if this weren't the case, Instacart shoppers, similar to Uber and Lyft drivers, have put pressure on the company to treat them more like employees, which would raise expenses for Instacart.
The story with DoorDash was that you should consider whether the company is an Uber or a Lyft. Since their 2019 IPOs, Uber is up 20%, and Lyft is down 37%.
Similarly, the DoorDash versus Instacart battle will be one of marketing and price competition, which could either drive both stocks down for a while or prove who's boss real quick.
It doesn't help that Grubhub and Uber Eats exist as well.
You could look at the DoorDash IPO to get an idea of how the stock might perform early on.
The good news is that Instacart will have the cash to expand - the over 400% cash infusion since 2017 helps that effort.
Be on the lookout for an Instacart IPO in Q1 2021.
Why the Bumble IPO Is One to Watch
In-person dating can be a trial amid a pandemic. But not online dating, apparently.
According to Statista, 31% of dating app users said they were using the app more than normal. That was in April 2020, when pandemic lockdowns were in full swing.
For the time being, dating apps have replaced going to the bar or other crowded events.
That's where apps like Bumble and Tinder from Match Group Inc. (NYSE: MTCH) hope to cash in.
Bumble announced its upcoming IPO in September.
Dating was already headed in a digital direction, and COVID-19 only seals the deal. Even if you have to go contactless, you can still go online.
Should You Buy Bumble Stock?
Bumble is a matchmaking app like Tinder or OkCupid. But its model is slightly different. It's designed so women initiate the conversation in heterosexual connections.
If that sounds too "specialty" to take off, the numbers say otherwise. Bumble is one of the most popular dating apps on the market. It overtook Tinder in audience size this year.
Tinder's users were counted over 7 million in 2019, and Bumble's was 5 million. Tinder is up to 50 million today. And Bumble, in 2020, surpassed 100 million users.
That number is poised to grow in the coming years with further digitization of relationships.
When the company IPOs in 2021, it expects to be valued up to $8 billion. Of course, nothing is set in stone, but just look at these financials...
Net revenue for 2018 was a up 1,632% from two years prior. It grew from just $5 million in 2016 to $86.6 million in 2018.
Last year, the company profited $31.1 million, its first annual profit since being $4.9 million in the negative.
And this company is just getting started - it has only existed since 2014.
Like Instacart, Bumble will have a fierce competitor at its flank. Match Group Inc. (NASDAQ: MTCH) is up 104% for 2020.
So far, people being stuck inside looks good for dating app stocks. As with the gig economy, however, you just have to be careful and choose the right horse.
Bumble might be one of the top names, but it could change in an instant. We see this in fresh industries all the time.
Petco Going Public
We know many technology stocks have performed well through the pandemic. But the pandemic also made people much more interested in owning pets.
According to CNBC, pet adoptions spiked in 2020. Same-store sales rose by 9.6%.
This has enticed Petco to file an S-1 in early December. The filing says the company expects households with pets to increase by 4% this year.
Petco, founded in 1965, is a pet supply retailer. The company sells pet food, grooming, training and other products. Right now, they have over 1,500 locations across the United States.
Unlike some pet stores, Petco refrains from selling large animals. While the company sells fish and small birds, its policy is "adoption first," an effort to remain in sync with animal activists.
This could point to a forward-thinking front office able to keep a 60-year-old company on the tracks. Here's whether or not Petco stock is a buy after the IPO.
Should You Buy Petco Stock?
It's true that pet adoption has increased this year. You can also look to other players in the pet supply industry to support the trend. Chewy Inc. (NYSE: CHWY), an online pet supply vendor, is up 224% since going public in 2019.
While Chewy is tough competition for Petco, Petco's recent momentum shows the battle is far from won. Petco recently invested $300 million to "modernize" its operations - part of that being a streamlined e-commerce experience.
In addition to that, it is launching a veterinary hospital network, something Chewy does not have access to right now.
That is where Petco will have a leg-up, and its name recognition gives the company a competitive moat even in the veterinary realm.
The Petco stock ticker will be "WOOF." An official date is not announced yet. But if Chewy's stock performance reflects anything, we could be in for even more growth from Petco.
Stripe IPO Comes Just in Time for the E-Commerce Boom
Digital payments are another trend that exploded in the pandemic, and we likely haven't seen the last of it.
Everyone and their mother wants to have their own e-commerce store. E-commerce makes up around a $3 trillion market, with online shopping taking a bigger share of retail sales every year.
Stripe is a company that enables those e-commerce hopefuls to get paid for their goods and services digitally and with ease.
Right now, the company is worth $36 billion. It's the most valuable American fintech company yet to go public.
With a growing number of businesses going online, either to stay relevant or to save on brick-and-mortar capital, this is sure to increase.
It's not merely e-commerce driving this growth. Use cases for digital pay have increased with the pandemic. People are paying for doctor's appointments through telemedicine, consulting lawyers and therapists via Zoom Video Communications Inc. (NYSE: ZM), and much more.
Seeing this opportunity, Stripe plans to pour more money into optimizing the platform, and an IPO in 2021 will help it do that.
In addition to e-commerce, Stripe has a rich SaaS clientele, with Salesforce.com Inc. (NYSE: CRM) at the top of the list. SaaS is another huge potential market set to bloom over the next decade, and that's potential profit for Stripe.
Should You Buy Stripe Stock?
If you haven't noticed the trend here, competition is thick for digital stocks.
Stripe has PayPal Holdings Inc. (NASDQ: PYPL), Square Inc. (NYSE: SQ), Venmo, and CashApp to contend with. These apps all serve different use cases, but as this market gets sorted out, it could get bitter.
How does Stripe stack up financially?
Right now, the company has $2 billion cash on its balance sheet, meaning it's valued at 18 times its cash. Square's valuation is 15 times, with $3.43 billion cash on hand. PayPal's valuation is 20 times cash.
Square's latest revenue report came in at $7.56 billion for the quarter, up $2 billion from previous reports. PayPal's most recent quarterly revenue was around $5.46 billion.
Stripe's is unknown, but you can get some idea of where it will be based on these numbers. Analysts expect its revenue to be in the ballpark of $3 billion and $4 billion.
With so many similar, exciting competitors, the same wisdom applies to Stripe as these other flashy tech stocks. Give it some time.
A Coinbase IPO Could Spark Revolution
On Dec. 17 (Thursday), Coinbase announced it had filed for an IPO with the U.S. Securities and Exchange Commission (SEC).
This came as a bombshell for the cryptocurrency industry, as Coinbase is the primary "crypto wallet" employed by Bitcoin investors.
It's essentially an app that facilitates the purchase and holding of Bitcoin and other cryptocurrencies. It looks and feels like any stock investing app.
The company could not have picked a better time to file its S-1. Bitcoin is at an all-time high of $23,500, and IPOs are hotter than they've ever been.
Unlike other IPOs we've mentioned here, though, this could take place later-than-sooner in 2021. Coinbase has not specified as to the structure of its IPO offering. There are a lot of kinks to work out.
It's rumored the company may go public via digital tokens on a blockchain ledger. If it went with the traditional stock-for-cash route, it may ruffle the feathers of a nontraditional, antiestablishment crypto audience.
Still, the SEC would have to approve such an unconventional deal.
Should You Buy Coinbase Stock?
Coinbase is well established as the go-to crypto wallet for Bitcoin buyers. And that might just be enough to make it an IPO to watch for in 2021.
According to Dave, a full-fledged IPO "will help legitimize crypto as an asset class." It gives retail investors some exposure to Bitcoin and crypto "without the risk and hassle of actually buying and holding it."
And getting a piece of Bitcoin may prove worthwhile in the long run.
Bitcoin is making huge strides as an alternate currency, getting ever closer to the mainstream with each year.
Predictions like $55,000 in 2021 would have seemed wild back when the cryptocurrency fell to under $10,000. But the current $23,000 price point and still-growing number of early adopters make it appear more credible.
Right now, holding just a small percentage of Bitcoin is encouraged, given that Bitcoin is increasingly scarce over time, but most of it still needs to be bought up.
There are different crypto wallets to choose from - even PayPal has a means for you to access your cryptocurrency. But Coinbase is widely considered "best overall."
However, the question of whether Coinbase is a buy is still uncertain. If ordinary IPOs are already a mystery, crypto IPOs can present a major curveball for investors.
Nextdoor was valued at just $2 billion in its last funding round, back in in September 2019. It could more than double by its IPO.
The neighborhood networking app could be valued somewhere between $4 billion and $5 billion by its IPO.
According to Bloomberg, the company has had a few chances to go public via SPAC merger, but it turned all of those down.
This 2008 San Francisco startup provides a sort of "neighborhood watch" experience, but with the addition of fostering community by listing events and services nearby and facilitating conversation between neighbors.
The app is currently available in 11 countries. In the time of COVID-19, it proved a hit as people were forced travel less and look for ways to engage with their more immediate surroundings.
It could remain an important app in the future if people gravitate to a more localized lifestyle.
Here is whether you should buy Nextdoor stock after its IPO.
Is Nextdoor Stock a Buy?
Its growing valuation is paralleled by a growing number of U.S. neighborhoods using Nextdoor. Right now, it serves over 220,000 neighborhoods.
The Nextdoor app allows people to get information on doctors, dentists, and restaurants in their area. Unlike Yelp, Nextdoor takes a "hyper local" approach. So, it's like Yelp Inc. (NYSE: YELP) but more personal.
This obviously has its benefits - but, if you can imagine, it also has its drawbacks.
Like many Silicon Valley startups, Nextdoor faces the challenge of "teaching" its audience how to use a novel service. Many are familiar with neighborhood watch, but not everyone is comfortable having the neighborhood in their pocket at all times.
This means, although the company has been successful in many neighborhoods, the app might take its time to fully catch on with its potential audience.
That has not stopped VC firms from pouring into the company. Nextdoor's total funding to date is over $447 million.
Part of the smart money's attraction to Nextdoor would have to be its leadership. Its CEO is Sarah Friar, the ex-CFO of Square Inc. (NYSE: SQ), the ultra-successful finance app founded by Twitter Inc.'s (NYSE: TWTR) Jack Dorsey.
While seeing a tested leader at the helm is great, such a quick expected doubling in valuation could raise some eyebrows. If a stock is overvalued at its IPO, it can come down quickly.
The best move for this one might be to watch for a slide early on. As it drops, pick a price point you like and buy.
Is ThoughtSpot the Most Exciting IPO of 2021?
Tech stocks were an exception to the pandemic crash in March. Technology was called upon to connect people while they were apart, whether that meant food delivery or video chats.
That made technology special. And it made tech IPOs unique in a time when the IPO looked somewhat shaky.
2020 gave us the biggest tech IPO of all time in September. Snowflake Inc. (NASDAQ: SNOW) raised about $3.4 billion from the IPO. The stock went from $120 to $250 per share in its first two weeks.
2021 holds similar expectations for ThoughtSpot.
ThoughtSpot is similar to Snowflake in combining analytics and the cloud. These are two huge trends that are going to be at the center of the digital economy over the next decade.
While the tech industry is somewhat amorphous, different companies trying to sort out their roles, there seems to be room for both a Snowflake and a ThoughtSpot.
Snowflake's primary use case is its cloud data storage. ThoughtSpot focuses on data analysis.
But that is not the only question to ask if you consider buying ThoughtSpot stock...
Should You Buy ThoughtSpot Stock?
ThoughtSpot's leadership comes from across Silicon Valley's elite firms - Alphabet Inc.'s (NASDAQ: GOOG) Google, Oracle Corp. (NASDAQ: ORCL), and Microsoft Corp. (NASDAQ: MSFT). That could check the box for leadership and direction.
It has been steadily expanding since 2012. The company is based in Sunnyvale, Calif. But it so far has offices in London, Seattle, Tokyo, India, and Bangalore.
Those won't be the last of big companies needing new ways to interpret their data.
That's probably why analysts have given ThoughtSpot a favorable outlook since its founding. ThoughtSpot was ranked the top data analytics firm by Gartner in 2020.
So, at the end, yes, ThoughtSpot could be another Snowflake when it IPOs. The only catch is that, out of all the 2021 IPOs on our horizon, this might be the farthest off.
Snowflake was a special circumstance where, if you could get it under $200, you don't regret buying.
Watch for any financials released over the year to see if your hopes in ThoughtSpot stock can be affirmed. If you can get it at a reasonable price point, this one could be a huge buy.
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