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5 IPOs that could be coming in 2021

Equity Analyst Sophie Lund-Yates looks at what companies could be doing a share launch, or initial public offering, next year.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

An Initial Public Offering (IPO) is when a company lists its shares on a stock exchange. Companies do this to raise money to fund future growth, or to let existing investors sell their shares.

An IPO is never guaranteed until it’s successfully completed, so we only have rumours and press reports to go on at the moment. However, investment bankers will do their best to drum up interest ahead of time, so big IPOs tend to be well publicised.

It’s important to remember not to pre-judge an IPO until you have two key pieces of information: the prospectus and the price.

Before listing, companies will provide a prospectus, which is often the first time investors get a chance to look at detailed accounts. There’s no way to judge an investment without looking at the books, and it’s important to go in with an open mind. A great product or PR team doesn’t guarantee strong financials.

The price is also important. Nothing is good value if you over-pay for it. A quick and easy way to benchmark the value of an upcoming IPO is to compare its price-to-earnings (P/E) ratio to similar companies that already trade on the stock market. You can calculate the price to earnings ratio by dividing a company’s share price by its earnings per share.

If the company isn’t making a profit you could use the price-to-sales ratio. This is simply the price divided by annual sales or revenue.

If you’re interested and want to participate, register for our IPO alerts and you could be among the first to hear about any IPOs available online through HL.

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Our IPO alerts service is for people who understand the risks of investing in equities, it is not personal advice. Taking part in IPOs and investing in individual companies isn’t right for everyone – it’s higher-risk as your investment is dependent on the fate of that company. If a company fails you risk losing your whole investment.

Investors should make sure they understand the companies they’re investing in, the company specific risks, and make sure any businesses they own are held as part of a diversified portfolio. All investments and any income they produce will rise and fall in value, so you could make a loss. If you’re not sure if an investment is right for you please seek advice.

Bumble

Bumble is a dating app. Users upload some pictures and just enough personal information to start a conversation.

They’ll swipe left through other profiles until someone takes their fancy, at which point they swipe right. If two people swipe right on each other’s profiles the app puts them together for a conversation and hopefully a date. This is basically the same model as Tinder, but Bumble’s twist is, when it comes to matches between opposite sexes, ladies have to make the first move to get the conversation going.

We don’t have a prospectus for Bumble yet, but Match Group, which owns Tinder, is publicly listed. The group generates over 30% operating margins and grew revenue 18% in the third quarter this year. Running an app is a potentially attractive business model, because each new member doesn’t cost a lot to service.

But if Bumble is putting up similar numbers the company will be in demand, and Match Group trades on a P/E ratio of 66.2. If Bumble is similarly alluring at IPO, investors will need to stump up a lot to own a piece.

The group is rumoured to be targeting a valuation of more than $6bn.

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Instacart

Instacart is an American grocery delivery company, although it’s started branching out into other products too. The business model is a little like Uber Eats or Deliveroo – you put your order into the app, which is then sent to a “personal shopper” who buys what you’ve asked for and then drives it to your door.

Some takeaway delivery options have struggled with profitability, and we worry Instacart might have the same issues. There’ve been leaked reports that the group turned a profit earlier this year, and the pandemic is likely to have given Instacart a significant boost. However, just like other tech companies, the price is likely to be high, and while the group may have bags of potential, we’ll want to see a clear path to profitability if the group’s not there yet.

The group was recently valued at $17bn and is rumoured to be targeting a $30bn valuation.

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Nextdoor

Nextdoor is a hyper-localised social network which connects people that live in the same area. Like other names in this list, the pandemic’s reportedly given the group a boost. The company makes money by offering a locally targeted advertising service. Users can share information, review local business and trade goods and services amongst themselves.

Like all social media companies, user growth is vital, so it’s impressive that the company has already reportedly reached one in four neighbourhoods in the US. However, we don’t know for sure how the company is doing because we don’t have a prospectus.

Facebook is also apparently planning to muscle in, so competition could be a challenge, but this could also suggest Nextdoor is on to something. If Nextdoor can carve out a niche it could generate significant profits for investors – although that’s far from guaranteed.

The group is reportedly targeting a valuation of $4-5bn.

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Deliveroo

Deliveroo is a takeaway delivery business based here in the UK, which could mean a London listing if the group does decide to go public.

Competition in the sector is fierce though, and Deliveroo competes with Uber Eats, Just Eat and a host of others. Profitability can be tough as well as margins tend to be slim thanks to competition and high variable costs. But the potential is there for strong returns if the logistics can be performed well and a company can establish itself as a fixture of the industry.

Once more, the pandemic has probably benefited Deliveroo as more of us turned to takeaways when restaurants were closed, and businesses looked for new ways to reach customers. Even supermarkets are starting to get in on the action in a similar move to Instacart. As with other exciting tech names on this list, the valuation could be steep.

The group could target a valuation of £3.2bn.

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Darktrace

Darktrace is a cyber-security firm with a wonderfully ominous name. The company has developed an artificial intelligence approach, and offers software and systems to protect businesses and their customers from attack. The metaphor is used throughout the group’s marketing, and products include the Enterprise Immune System and Darktrace Antigena.

The marketing is certainly very slick, and the products might well have been in high demand as businesses moved to home working. That said, we’ll have to see a prospectus before saying more.

The group is rumoured to be targeting a valuation of £3.8bn.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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