The IPO market has been a dud for months. But that’s about to change.
Lyft, Slack, and Levi Strauss could all debut on the stock market later this month. And there’s far more to come this IPO season, says Kathleen Smith, a principal at Renaissance Capital and manager of the Renaissance IPO ETF (IPO).
Smith told CNN Business’ Alison Kosik during the “Markets Now” live show on Wednesday that investors are ready. As the broader stock market is looking bullish, buyers are getting more comfortable with the risk of adding newly listed stocks to their portfolio
Renaissance’s IPO ETF, which serves as an barometer for investors’ IPO appetite, is up about 30% so far in 2019 after suffering a major dip at the end of last year.
A parade of so-called unicorns, privately held companies valued at more than $1 billion, are expected to go public this year. They include Uber, Pinterest, Peloton, AirBnb, and WeWork.
The busy IPO market could cause problems for some of thecompanies expected to debut later this year.
“If investors have this many choices, there’s going to have to be something to lure investors to the table and take the risk of owning these new names,” Smith said.
But that could be a better equation for the buyers, Smith added.
“If investors do not make money in IPOs, the IPO market doesn’t work,” she said. “We think the IPO market may work this time, and it maybe just be a little bit harder on the issuers who need to move forward — and may find that their private valuations may not hold up in the private market.”
The tech sector has been the darling of the IPO market in recent years. But at the same time, investors have had to grapple with the fact that many new entrants were not immediately profitable and didn’t live up to their private-sector valuations.
Smith’s take: She’s big on Slack and Levi’s, but cautious about Lyft.
Slack has a good shot at being a profitable, she said, because their business model — selling messaging software to other companies — tends to bring in more predictable revenue, she said.
And based on Renaissance’s research, Smith said Levi’s also looks promising, with $5 billion in revenue and strong potential to grow and post profits.
“Investors are going to be interested in this,” she said. “We are. We like the idea of a company that’s making money.”
Lyft’s highly anticipated IPO is expected later this month ahead of rival Uber. Smith said Lyft will have an advantage over Uber by going first and making its debut while the IPO market is hot. But from an investors’ standpoint, she’s “a bit worried” about Lyft’s “growth at all costs” mentality.
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