Technology companies tend to outperform other industries in the United States. For example, in the past five years, the Nasdaq 100 index, which tracks the US’s biggest tech names, has gained more than 150% while the S&P 500 and Dow Jones have gained only 60%. Some companies like Shopify, Square, and Facebook have grown from relatively small companies a decade ago to become some of the world’s biggest firms. This report will look at some of the top upcoming tech IPOs to watch out for.
SpaceX
- Industry – Space technology
- Amount raised ~ $5.6 billion
- Valuation ~ $46 billion
SpaceX is a technology company that has successfully disrupted the space industry by saving the amount of money spent to launch rockets. It is also developing spacecrafts that will be able to take people to space in the future. Indeed, the company has already received deposits from some of the enthusiasts.
Over the years, SpaceX has raised more than $5.6 billion and is now the third-biggest technology company in the world after Bytendance and Didi Chuxing. Among the firm’s biggest investors are Founders Fund, Draper, and Rothenberg Ventures.
SpaceX has committed to go public in the future, but it has not indicated when it will do so. However, it is one of the most anticipated companies, mostly because of its CEO, Elon Musk. Also, interest in the space industry has been growing as evidenced by the recent performance of Richard Brunson’s Virgin Galactic.
Unlike Galactic, SpaceX has ready customers, including NASA, and has a proven track record in the industry. The company also has been growing its revenue, which has soared to more than $2 billion, according to estimates by Jefferies.
Stripe
- Industry – Fintech
- Amount raised ~ $1.7 billion
- Valuation – $36 billion
Fintech has been among the fastest-growing industries in the world. In the chart below, you can see the exemplary performance of Square, AfterPay, and PayPal.
The same trend has been going on in the private market, where companies like Klarna and TransferWise have raised millions of dollars at multibillion-dollar valuations. In the US, Stripe is the biggest privately-owned fintech company that will soon join Square and PayPal in the public markets. It has raised more than $1.7 billion at a $36 billion valuation.
Stripe has several benefits that make it a good investment when it IPOs. First, it has some of the biggest customers in the world as clients. These include firms like Google, Lyft, and Shopify. Second, it has a simple revenue model, where it takes a small cut for all transactions. Third, it is a company that is difficult to replace by companies that use its service.
Fourth, it is in an industry that investors are in love with. Finally, it is in a strong cash position, which helped it acquire a Nigerian payment firm for more than $200 million.
DoorDash
- Industry – Delivery
- Amount raised ~ $2.5 billion
- Valuation ~ $16 billion
DoorDash is a technology company that provides food delivery services to most restaurants in the United States. The firm has raised more than $2.5 billion from investors like Kleiner Perkins, Sequoia, and Khosla Ventures. According to CNBC, it has the biggest market share in food delivery.
DoorDash has been among the leading beneficiaries of the coronavirus pandemic since it has accelerated online meal services uptake. Indeed, the company, together with similar services by Instacart and Uber Eats, have experienced more than 200% growth.
DoorDash has an exciting and high-margin business. For one, it employs thousands of freelancers, who only make money when they deliver food. It makes money by taking a delivery fee whenever customers order. While the fees are usually high for restaurants, using DoorDash is usually cheaper than building their private networks.
In February this year, DoorDash submitted its S1 filings to the SEC, which is usually the first step companies make before the IPO. In a recent report, the company said it expects to go public in the fourth quarter of the year.
While DoorDash will be an interesting company to watch, it also has some limitations. The most pressing one is on whether its freelancers are employees as suggested by California. If the resolution passes in the upcoming election, it could push other liberal states like New York to pass similar laws.
Epic Games
- Industry – Gaming
- Amount raised ~ $3.4 billion
- Valuation ~ $17.3 billion
Gaming companies have been among the best winners of the coronavirus pandemic as more people stay at home. Indeed, shares of companies like Tencent, Electronic Arts, and Take-Two Interactive have done exceptionally well. At the same time, some gaming companies like Unity Software have already gone public.
This has led many to speculate that Epic Games will be next. Epic Games is a company well-known for its Fortnite game. Unknown to many, the company is also a leading player in the gaming industry because of its Unreal Engine product that helps developers build their games.
Epic Games has raised more than $3.4 billion, mostly from Tencent, Lightspeed Ventures, and Fidelity. The company has millions of users around the world and makes more than $4 billion a year and more than $750 million in earnings before interest, depreciation, and amortization. Also, the firm is involved in a battle with Apple and Google about their app store policies and commissions.
Epic Games has not confirmed when it will go public, but investors believe it will do so soon. If it does, some of the reasons to invest in it will be the popularity of Fortnite, its revenue and high margins, and its unreal engine platform.
Conclusion
Investing in technology companies after IPO can be rewarding. Think of people who invested in companies like Carvana, Wayfair, Shopify, Square, and PayPal. However, it can also be risky as investors in LendingClub, Groupon, and GoPro learnt. We believe that the five companies we have mentioned will do good in the public market because of their market share, strong growth, and moat in their businesses.
