Did you know that over 400 private companies went public in 2021, resulting in a lightning-quick bear market filled with new initial public offerings (IPOs) worth over $300 billion collectively? The last time the stock market experienced such a massive surge was in 2000, but even the dot-com boom wasn’t nearly as busy as 2021 as global economies began reviving themselves after months of lockdowns and business closures during the COVID-19 pandemic. However, many large private companies held out on predicted IPOs in 2021 due to different reasons, such as evolving investor sentiment and stock market fluctuations. Some simply don’t want the scrutiny that comes from going public by the SEC and shareholders.
Nevertheless, times are rapidly changing in 2022, and with new COVID variants running the show, many companies could use the additional cash infusions to grow their business or finance new initiatives, such as adopting modern technology like artificial intelligence and cloud computing. On the flip side, many savvy investors are looking for longtime private companies to make it to the IPO altar so they can grow their stock portfolios and add companies they’re already familiar with.
In this post, we’ll explain what an initial public offering is, the benefits of investing in one and 5 potential IPOs to watch for in 2022.
What is an Initial Public Offering?
An initial public offering (IPO) is when a private company becomes public by selling its shares or securities to the general public through a stock exchange. It is also the first sale of a new publicly-traded company after it meets the stock market’s regulatory requirements. Before going public, these companies generally have a small number of shareholders and investors. After an IPO, their company is open to investments to any trader on that exchange, e.g., NASDAQ or NYSE.
Benefits of Investing in IPOs
The following are the main benefits of investing in IPOs:
1. Early Bird Advantage
By investing in an IPO, you’re not only becoming a shareholder of a company with high growth potential but also making a smarter investment. IPO stocks are much cheaper in the early stages since the company has just gone public, so you can save money and earn big as its demand and equity slowly build up.
2. More Profit
IPOs allow investors to receive rapid profits from the start since they have fewer investors in the early stage, which means that your shares carry more value.
3. Greater Financial Security
IPO stocks are much safer investments compared to speculative stocks and cryptocurrencies since they’re relatively less volatile, especially if the company has been around for a long time.
The Most Highly Anticipated Initial Public Offerings in 2022
Quora is a popular question-and-answer website with a global audience spanning over 300 million and a market valuation close to $2 billion. According to the rumor mill, the company has been holding talks to hire bankers and lawyers for an IPO, which could double its value within months. Since its inception, Quora has been a home for crowd-sourced questions and answers and has expanded to blogging to try and make itself more attractive to creators. It also aims to branch into subscription revenue through Quora+, allowing creators to charge people to view their content while taking a 5% cut.
Reddit is a social media company home to a network of online communities where people can talk about their hobbies, interests, passions, work, and a host of other topics. The company is currently worth $3 billion and submitted a draft registration with the SEC in 2020. Reddit’s founder and CEO, Steve Huffman, aims to invest in expanding the platform into new markets by adding and improving features, such as advanced video capabilities, to compete with Facebook and TikTok. He also aims to make the IPO more accessible for investors by using Robinhood and other trading apps.
Instacart is an American grocery delivery and pick-up service founded in 2012. The company has quickly become a pandemic staple and has expanded to more retailers around the country, taking its revenue to nearly $1.65 billion in 2021 and market valuation to $39 billion. Instacart was an IPO contender in 2021 but decided to postpone its plans following an executive shake-up and the emergence of new competitors in the market. However, things seem to be sailing smoothly now, with the company set to go public as the grocery delivery industry continues to grow.
4. Impossible Foods
With veganism growing at unprecedented levels, the plant-based protein industry is seeing a rapid increase in demand. Impossible Foods, a company that made its name by introducing faux burger patties in small markets and chains in 2011, has now expanded to over ten thousand stores in the US and amassed a market valuation worth $1.5 billion. According to its founder, Patrick O. Brown, going public was inevitable, and 2022 could be the year if the company can meet its $10 billion valuation requirement.
Stripe is one of the world’s largest payment processing companies with over 4,000 employees worldwide and a market valuation worth $95 billion. With annual revenue of $7.5 billion, it is the biggest privately held company in the US mainly due to customers like Amazon and DoorDash that use its service as one of their main payment methods. Although its founder John Collison claims that Stripe is very happy as a private company, according to a report by Reuters, the company recently hired a law firm to explore the IPO process.
And there you have it – the 7 most highly anticipated initial public offerings in 2022. So, if you’re an institutional investor looking to make some money, check out what these future publicly-traded companies have to offer to your stock portfolio and invest ahead of time to reap the financial benefits. IPO stocks have been the go-to choice for many young investors seeking high-growth opportunities, and this trend has only grown since the pandemic.
by Bobby J Davidson
I love our companies and we love what we do. For more information on the Davidson Family of Companies, visit www.bobbydavidson.com/about. Sign up for my Newsletter at the bottom of this page.