After years of remaining on the stock market’s sidelines, a number of highly valued Silicon Valley technology companies are now gearing up to go public as soon as next year.
Among the IPO candidates are ride-sharing companies Uber Technologies Inc. and Lyft Inc., and data-mining specialist Palantir Technologies Inc.
Should they follow through, 2019 could be a record-breaking year for IPOs in terms of dollars raised. It could top 2000, the high-water mark, when tech companies raced to cash in on lofty valuations at the height of the dot-com boom.
Uber, which is eyeing a potential early-2019 listing, could be valued at as much as $ 120 billion, The Wall Street Journal reported this week. If it raises the typical amount for a company that size, its IPO proceeds could hit as much as $ 25 billion.
That is more than half the $ 44.5 billion raised by all tech companies on U.S. exchanges combined in 2000, according to Dealogic. It would also make the ride-sharing pioneer the biggest company to debut since Alibaba Group Holding Ltd. BABA -4.13% went public in 2014.
Palantir, a data-mining specialist co-founded by famed investor Peter Thiel, may debut next year or in 2020 at a valuation that could reach $ 41 billion, the Journal reported Thursday. People familiar with its plans caution they remain in flux, and that investment bankers often exaggerate projected IPO values to win business.
Palantir, founded in 2004, has remained private for so long that employees find it hard to cash out private stakes. That has contributed to some employees’ decisions to leave, people familiar with the matter said.
Lyft is considering an early-2019 listing that could value Uber’s principal U.S. rival at more than $ 15 billion, the Journal also reported this week.
Other big tech startups in the 2019 IPO queue, according to people familiar with the matter, include workplace-messaging platform Slack Technologies Inc. as well as a raft of smaller but closely watched companies including food-delivery service Postmates Inc., security firms CrowdStrike Inc. and Cloudflare Inc., and videoconferencing-software provider Zoom Video Communications Inc.
Other large private companies that haven’t decided on IPO timing but could potentially debut next year include Airbnb Inc. and Pinterest Inc., along with a number of Chinese tech heavyweights like ride-hailing company Didi Chuxing Technology Co. and Ant Financial Services Group, an Alibaba affiliate that earlier this year was valued at $ 150 billion.
All this is a drastic change for companies that for years relied on ample supplies of cash from private sources and chose to build their businesses away from the prying eye of public investors and analysts.
That capital hasn’t dried up, but these companies are now rethinking their aversions to the public markets, drawn by sky-high stock prices and the opportunity to establish a liquid market for their shares.
For average investors, it could mean they finally will be able to bet on companies like Uber that have become part of their everyday lives but have been out of reach, even as their estimated values ballooned.
Helping explain the rush to the public markets, according to bankers and lawyers, is a fear by executives that if they wait another year they could risk missing out on a window that eventually will close. Indeed, there is no guarantee that any of the companies planning to debut next year or in 2020 will manage to do so, as the IPO market is notoriously volatile and sensitive to market and economic health.
In addition to the risk that the economy slows, demand for newly public companies may wane with a flood of freshly issued stock. The popularity of large public tech companies has wavered in recent trading sessions, highlighting the risk for those hoping to ride the wave of tech-IPO demand.
The euphoria could also be seen as a sign of a market top, much like in 2000.
Still, today’s crop of tech IPO candidates is nothing like those from the dot-com boom, when startups sometimes only months old went public to raise comparatively small amounts. In 2000, according to startup-research tracker Dow Jones VentureSource, 213 startups backed by venture capital held IPOs, raising about $ 20 billion.
As recently as last year, bankers, investors and startup executives questioned whether companies like Uber could live up to their private price tags in the public markets. Now, many bankers are telling these companies that the public markets will likely value them well above those levels.
Uber was valued at $ 76 billion in a private funding round earlier this year, well below what bankers now say it could fetch in an IPO.
Other private companies, including Lyft and Cloudflare, are being told they should expect valuations far in excess of their last private rounds in an IPO, according to people familiar with the discussions.
“If your company is executing well, what more could you be waiting for?” said Mark Hantho, Deutsche Bank AG’s chairman of global investment banking and capital markets. He added that many of the largest private companies still have strong growth potential, but it will eventually taper off.
Investors have gobbled up shares of newly public companies so far this year, with 201 businesses raising $ 54 billion in U.S. IPOs, including 47 technology issuers that raised $ 17.8 billion, according to Dealogic. That is the most by both measures in a similar period since 2014 and more than each of full-year 2015, 2016 and 2017.
Perhaps more important, tech IPOs—the engine of the overall new-issue market— have been priced at an average of 9% above their proposed ranges, according to Dealogic. Even after that, the average tech company soared 28% on its first day of trading.
In a sign that companies are bullish on their stocks’ post-IPO trajectories, many have been holding out to sell more shares later at higher price points, according to bankers and analysts. Tech companies have sold the smallest proportion of their shares in IPOs ever—roughly 17%—so far this year, according to Dealogic.
When newly public tech companies return to market to raise additional cash they are finding eager buyers. Tech issuers have raised more than $ 21 billion through follow-on offerings so far this year, on pace to be the most raised by these types of deals since 2000.
In another sign of exuberance, investors are overlooking lofty valuations and measly—or zero—profits to have a shot at outsized returns. In the first three quarters of the year, four-fifths of all U.S.-listed IPOs were of companies that lost money in the 12 prior months, according to data compiled by University of Florida finance professor Jay Ritter. That is the highest proportion on record.