As tech stocks rally, bring on the IPOs

During yesterday’s tense voting and this morning, shares of American-listed technology companies are shooting higher.

The tech-heavy Nasdaq composite is up around 3.35% this morning, more than double what the broad S&P 500 index is currently managing. SaaS and cloud stocks kicked off the day up a staggering 4.98%, a sharp rally in the value of smaller, more growth-oriented technology companies.

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For technology companies on the wings of the IPO market, it’s great news.

In 2020 it can be easy to forget, but tech stocks do not have to rise. They merely have in recent months, perhaps warming the waters for more technology debuts as the fourth quarter races toward its midpoint. The Exchange has heard whispers from several folks that the late-November/early-December period could be active for new filings, bringing rising stocks and pent-up demand together for a possible IPO run.

We’ll see. Today’s rally — and ballot measure results in California — could be the push companies like Airbnb and DoorDash needed to stop faffing around with private filings.

In pedestrian terms, the getting is good right now for public tech companies, so if you are going to go public, go get got while the getting stays good.

Today, let’s examine recent market gains for tech stocks and remind ourselves who is expected to go public next. Then, of course, chat about all the unicorns on the unofficial IPO list who could find a greased path ahead of them toward a flotation.

Gains

Big tech stocks are gaining, small stocks are up and software companies are hot. The NASDAQ is now less than 5% away from its all-time highs, and the Bessemer Cloud Index is now just 9% down from its own, a rebound from its prior status in correction territory. (A correction occurs when an index falls 10% or more from highs.)

So, who does the rally help? Let’s rock through a list:

• Airbnb, widely expected to go public this year and having already privately filed, is perhaps the unicorn most blessed by both the 2020 tech rally and the recent gains. Why? It’s a company on the bounce, hoping to post a strong valuation after a terrible year. Airbnb was hard-hit by COVID-19, forced to lay off staff and retool its business. After raising expensive capital at a discount to its prior valuation, Airbnb is said to have recovered well in Q3 2020. But if the markets themselves had not recovered along with it, would the firm be able to really reach for a valuation of as much as $30 billion? Nope.
• DoorDash is basking in not only today’s general rally, but the epic run that Uber and Lyft are enjoying this morning on the back of Proposition 22 apparently passing in California. The law lets companies that employ gig-labor avoid classifying them as employees. This defends the DoorDash and Uber labor model in a key market. For DoorDash, rising stocks mean its valuation is easier to defend, and now a major question mark has been removed from its path to the public markets. Full speed ahead?
• Roblox has also filed. With a hot stock market and active gaming M&A, why would Roblox wait? Hell, even the strong Unity IPO could be viewed as a bonus for Roblox, making gaming a bit more enticing in the mind of public investors.

Those are the companies that have filed. Who else is on the list? In no particular order:

• Coinbase is expected go public inside the next year. Rising crypto prices could make this one even more likely than just rising tech stocks could indicate.
• Databricks crossed the $350 million run-rate threshold in Q3, and is tipped to have a H1 2021 IPO in mind. That could be as soon as January. Why would it wait to go out when it has the scale and the markets are begging for it to do so?
• Robinhood and Chime are probably longer bets to see go public inside the next six months, but as they raise more and more capital at higher and higher valuations, the pressure mounts for them to get liquid. With markets so hot, how can they not aspire to get public?

That’s my list as I sit here today. There could be others that come out of the wings, and perhaps more now that stocks are racing back toward record highs.

What would Databricks be worth in a 2021 IPO?

Databricks crossed $350M run rate in Q3, up from $200M one year ago