Lyft’s initial public offering on Thursday is the first of a series of highly-anticipated debuts by tech companies in public markets. And so far, Lyft is proving that it’s the right time to make the leap.
“With what we’re seeing with the excitement and feedback from the investment community, this IPO market could end up being historic,” said Barrett Daniels, national IPO services leader at Deloitte & Touche.
Lyft, which will begin trading on Nasdaq on Friday, was one of several big tech companies expected to go public this year. In the IPO, the company priced its shares at $72, at the high range of what it had initially anticipated.
“This IPO is a ‘watershed’ event for the tech sector as well as the ridesharing industry that in our opinion has become one of the most transformational growth sectors of the U.S. Consumer market over the past five years,” analysts at Wedbush Securities wrote in a note following Lyft’s IPO.
Meanwhile, Pinterest, which filed its public paperwork with the Securities and Exchange Commission on March 22, is expected to begin trading on the New York Stock Exchange in April. Lyft rival Uber, also expected to go public in April on the NYSE after filing confidentially, could have a valuation of up to $120 billion and become one of the largest IPOs in history. Postmates, Zoom, Slack, and Airbnb, also are anticipating debut later this year.
Investors’ appetites are strong for these “decacorns,” or companies with valuations larger than $10 billion, Daniels said. Lyft’s IPO was oversubscribed a week before it went public, signaling the heavy demand for its shares that helped send its market value to $24.3 billion, higher than the $23 billion valuation it had initially expected. Meanwhile, Airbnb was privately valued at more than $30 billion during the last two years, while Pinterest was most recently valued at $12 billion.
“These are not your Boomer-generation IPOs,” said Duncan Davidson, general partner at venture firm Bullpen Capital. “We killed the small IPO after 2000.”
That’s because for years, the venture capital market has bet big on newer ventures, allowing companies to stay private and well-funded for longer periods of time. But generally, investors expect a return on their investment. So this year, those heavily venture-capital-backed companies are finally making the big move, in an effort to take advantage of the current strong market conditions.
The excitement for Lyft will likely spill over into Uber’s expected initial public offering, Davidson said. But that doesn’t mean that all tech IPOs will get the same reception because some companies don’t have a clear path to profitability.
“It won’t be … the tide that lifts all boats,” Davidson said. “The market will still be selective.”
What excites investors most about these large tech companies, most of which are unprofitable, is revenue growth, according to Deloitte’s Daniels. Lyft’s revenue in 2018 doubled to $2.2 billion while it lost $911 million, 32% more than the year before.
“A lot of these startups made a conscious decision early in their lives to grow and grow quickly,” Daniels said. “It would appear they’re going to be rewarded for it.”
Daniels says most companies that have been considering IPOs are speeding up the process to ensure they debut this year. Though a couple of companies may opt for a direct listing, a process that foregoes underwriters, he expects this to be the year of the IPO.
“It feels like it’s going to be real exciting here for the next couple of months” and continuing into the year, Daniels said. “It’s going to be a historic year.”