Initial Public Offerings (IPOs) give investors the opportunity to grab shares at the starting price of a company as they float on the stock exchange, transferring from being privately held to a public company.
As investors decide whether to buy shares or not, the price can differ massively from the original underwritten expectation of the investment bank – creating the potential for massive gains or losses. All going well, companies benefit from a huge influx of cash to fuel future expansion.
Following a series of Covid-19 induced shocks to the stock market (and subsequent lull in public offerings), recent vaccine breakthroughs promise a return to normality that both companies and investors have long been craving.
This mood of excitement settling over IPO markets was heightened by a late flurry of launches in the charge to raise capital before the end of last year.
In what was a stop-start year for the finance industry, IB Insider explores some of the biggest IPOs of 2020 and what we can gather from them.
16th January: Shanghai, Beijing-Shanghai High Speed Railway Co Ltd – $4.5bn
Despite being at the epicentre of the coronavirus pandemic, the Shanghai stock exchange had a strong start to 2020 with the biggest IPO of Q1.
The launch of Beijing-Shanghai High Speed Railway raised around 30.7bn Yuan ($4.5bn), with investors keen to capitalise on the dependable profits of the operator of the rail service between China’s two biggest cities.
China’s economic growth is predicted to be around 7-8% for 2021, a recovery to be envied by most developed economies in the West and a clear opportunity for investors.
16th September: London, The Hut Group – $2.43bn
This e-commerce company represented a rare tech fortune for the UK market – Europe saw just 26 venture capital-backed IPOs in 2020, compared to 70 in the U.S. and 92 in China.
THG raised £1.88bn ($2.43bn) on its first day – selling 376 million shares at 500 Pence per share. This was 25% above the initial public offering and valued the firm at £5.4bn ($6.96bn). The IPO was the biggest of a British company since the government floated shares of Royal Mail back in 2013.
It was success shared, as founder Matt Moulding distributed shares worth £1bn, making 74 workers millionaires overnight!
THG’s core businesses operate as Europe’s largest online beauty retailer, with growth anticipated via its Ingenuity e-commerce platform and third-party licence opportunities.
12th October: Warsaw, Allegro.eu – $2.3bn
Huge figures from an unlikely source. Polish e-commerce giant Allegro’s IPO was the largest ever listing on the Warsaw Stock Exchange.
The company raised 9.2 billion zloty ($2.3bn) by selling 236.8 million shares and private equity investment from owners Cinven, Permira and Mid Europa Partners.
The homegrown e-commerce platform is a rival to giants such as eBay and Amazon and saw shares leap more than 60% on their debut with demand far outstripping supply.
E-commerce in Poland has boomed during the pandemic with demand from a growing middle class in one of the European Union’s most resilient economies.
8th December: Hong Kong, JD Health – $3.5bn
The online healthcare subsidiary of Chinese e-commerce giant JD.com raised $3.5bn on its launch, with up to a 75% surge on the opening day. The platform is one of several tech giants worldwide benefitting from entering the health market.
Significant increases in consumer demand for virtual consultations and online pharmacy solutions in China saw the firm’s revenue increase 76% year on year. Success was shared by competitors in China such as Ping An Good Doctor and Alibaba’s AliHealth.
China is leading the way worldwide in digital healthcare innovation in an industry ripe for big tech disruption.
10th December: US, NASDAQ – Airbnb – $3.4bn
A victim of the uncertainty of 2020. In May, Airbnb was forced to raise $2bn in emergency funds following a 70% slump in bookings due to the pandemic. The knock-on effect was a delay of their much-anticipated IPO.
Patience and faith were repaid in full with interest, as investment exploded following its launch on the NASDAQ. Closing at a raised price of $144.71, from an expected $68, meant a huge opportunity to capitalise on shares.
Overall, the home-sharing business has raised $3.4bn. Just another example of the unpredictability that businesses and investors managed throughout 2020.
Tech still excites
The gulf between tech stocks and old-economy firms continued across the board as investors were keen to ride the wave of digitalisation. THG and Allegro show confidence in retail’s shift to e-commerce solutions, whilst the digital financialization of more traditional sectors such as housing and healthcare have shown growth opportunities for Airbnb and JD Health.
The impacts of the pandemic have fuelled digital innovation revenues with demand skyrocketing from consumers along with investor capital towards it.
Growth over profits
Whilst companies going public generally have strong revenues, profitability can still be elusive for many at launch. Investors are enduring beasts though, and most are not discouraged by untenable financials in the short term.
They see the real potential for return on investment from growth – capturing an ever-greater market share as the cornerstone of future success.
The best example of 2020 was Airbnb – still yet to have a profitable year in business but a projected growth of around 30% this year was enough to convince investors to pour money in (in both April and December).
Confidence is high that the company will bounce back from Covid pressures and consolidate its hold on the house-sharing market.
A pretender to the throne?
Huge IPOs have long had a spiritual home in US markets, and whilst the US has its own homegrown heavy hitters such as Airbnb, Chinese IPOs now account for significant portion of market activity.
US markets had a record year thanks to continued Chinese companies’ desire to enter. In 2020 over 30 Chinese companies went public on U.S. stock exchanges, owing largely to it being one of the easiest countries to raise significant capital in.
It appears to be a two-way street, as listings have crept East in recent years. Stock exchanges in Greater China — including Hong Kong, Shanghai, and Shenzhen —raised over a combined $120bn in 2020 and accounted for 45% of global IPOs in the first three quarters of the year.
The shift has been encouraged by Beijing’s desire to rely less on foreign money, alongside a boom of homegrown Chinese tech companies it wishes to support through the pandemic.
Benefiting from regulatory loosening and secondary listing opportunities in Hong Kong, money has flowed into the exchanges for multiple high-profile launches.
Looking ahead, it’s no surprise then that the most anticipated IPOs are tech companies promising rapid growth (Stripe, Roblox, Coinbase, Bumble, Darktrace, Deliveroo) and Chinese giants across markets (ByteDance owner of TikTok, Ant Group, Kuaishou Technology, JD Logistics, Wahaha).
It remains to be seen how many ‘homegrown champions’ China will continue to produce and where they choose to raise their capital. Despite reform, high levels of founder ownership, limited availability of shares and the spectre of Beijing’s pressure poses investment risk.
The postponement of one of the largest and most anticipated IPOs of 2020, Ant Group, was at the request of Chinese officials, showing the distance there is still to go to assure investors of the size, status and independence enjoyed by US markets.