IPOs to Watch in 2023
Looking to Invest in an IPO This Year? Here are Some of the Companies Slated to Go Public.
Each year, the finance community excitedly waits to see which companies will go public. Recent market volatility has caused some companies to postpone their IPOs. However, with companies like Reddit, Stripe, and Instacart considering an IPO in 2022, there will be plenty of opportunities for investors as the year continues. Here are our top 9 IPOs to watch this year.
Founded in 2012, Discord is software that allows you to communicate with other users via voice, video, and text. Discord became increasingly popular, especially with gamers, during the pandemic when people were stuck at home and looking for ways to communicate with friends.
Discord has turned down acquisition offers, setting its sights on an IPO instead. The company hasn’t filed any paperwork with the SEC or taken any meaningful steps toward an IPO, but people are keeping their eyes on the company for 2022.
Reddit is one of the most popular websites on the internet and is home to thousands of discussion boards that millions of users participate in each day. The site has been around since 2005 but has grown in popularity even more since early 2021 when investors on the subreddit r/wallstreetbets helped surge GameStop’s stock price.
Reddit has already taken major steps toward its IPO. It has filed a registration statement with the SEC and has reportedly hired Morgan Stanley and Goldman Sachs. Early reports show the company could have an estimated valuation of $15 billion for its IPO, which is expected to happen later this year.
Instacart is a popular shopping app that allows users to order groceries for delivery. Not surprisingly, the app reached new levels of popularity during the pandemic when fewer people were leaving their homes.
The company hasn’t filed any paperwork with the SEC yet, but expect an IPO sometime in 2022. Some rumors state the company is planning to go public through a direct listing, which is a quicker route that doesn't require underwriting or issuing new shares.
Software company Databricks was founded in 2013 by the creators of Apache Spark. The company is known for pioneering “lakehouse” data management architecture in the cloud. Databricks operates internationally in at least 12 countries and is used by more than 5,000 organizations.
Databricks hasn’t filed any paperwork with the SEC yet, but its co-founder and CEO has confirmed plans to go public. The company is still weighing its options between a traditional IPO and a direct listing, but either way, this is expected to take place in 2022.
Chime has more than 13 million users, making it one of the most popular online banks in the United States. Its mobile app and online platform allow users to bypass fees and bank easily using their browsers or phones.
Chime’s IPO is highly anticipated. Rumour has it that the company hired Goldman Sachs to manage its IPO, though this hasn't been confirmed. Initially, the company planned to go public in early 2022. But given the recent volatility of technology stocks, insiders reported that the company is holding off until later in the year to officially launch its IPO.
iFIT Health & Fitness
iFIT Health & Fitness is the parent company of the popular fitness brand NordicTrack. The company, which has been around since 1977, has created some of the most popular fitness machines on the market. It includes brands like NordicTrack, ProForm, Weider, Freemotion, and Sweat.
iFIT had originally planned to go public in late 2021, but postponed its IPO in October in response to market volatility at the time. While the company has yet to announce a new date for its IPO launch, expect it sometime in 2022.
The startup Impossible Foods specializes in making plant-based substitutes for meat, fish, and dairy products. It has grown rapidly in recent years, making its way into tens of thousands of grocery stores and restaurants, and even landing a patty on Burger King’s menu.
The company hasn’t made any official announcements yet, but it’s rumored to be considering two different routes: an IPO or a SPAC deal. A SPAC merger means that the company would be acquired by a company. These companies go public for the purpose of acquiring a successful company down the road to help them transition from private to public.
Next on our list of the top IPOS to watch is popular scooter company Lime which has taken major cities by storm. The company was founded in 2017 in San Francisco and now operates in more than 200 cities in the U.S. and around the world.
Lime is really stepping up its private funding as it prepares to go public. It recently raised another $523 million, bringing its total so far to $1.5 billion. Lime hasn’t announced any IPO dates yet, but it’s expected to go public sometime in 2022.
Stripe is a popular online payments app with headquarters in both San Francisco and Dublin and offices around the world. Stripe has become a popular resource for businesses, and currently has millions of clients small and large.
Stripe is one of the most highly anticipated IPOs for the last several years, but it seems that 2022 might finally be the year the company goes public. Stripe hasn’t officially set an IPO date, but some rumors suggest its considering going public through a direct listing instead of an IPO.
What Are IPOs and How Do They Work?
When a private company goes public by offering shares of its stock to public investors for the first time it’s called an initial public offering (IPO). Before an IPO, a company is owned primarily by its founders and the private investors acquired through venture capital, angel investing, etc.
An IPO serves a few different purposes. First, it allows the company to raise additional capital to help it expand its business operations and grow more rapidly than it would as a private company. Second, an IPO allows the founders and early private investors to make money on their investment in the company.
Going public is a long and expensive process and it can take companies well over a year to go from the planning process to the actual IPO.
Here are the five steps companies go through before they are ready to go public
1. Selecting an Underwriter
An underwriter is an investment bank that manages and sells a company’s IPO. It’s one of the first steps a company goes through before it makes any real progress with the offering. The bank handles everything from drafting documents to pricing the IPO to ultimately selling the IPO stock.
Some of the most prominent IPO underwriters are Goldman Sachs, Morgan Stanley, JP Morgan, and Merrill Lynch. Most companies don’t have just one investment bank underwrite their IPO, and some may have a dozen or more.
2. Due Diligence and Filings
The next step of the IPO is due diligence. In this step, the underwriters do background research on the company. Then the company and underwriters agree on a contract, which can be structured in a few different ways, and decide what the IPO will look like.
In some cases, underwriters might agree to a contract to purchase all of the IPO stock, which they’ll then resell. In other cases, they might agree to sell the shares to the best of their ability, but without a firm commitment to sell all of them.
During this process, the underwriters also prepare the registration statement and supporting documents to be filed with the Securities and Exchange Commission (SEC). Included in the documents the underwriters will draft are:
- Engagement letter. In this letter, the company and underwriters state how much the investment banks will be reimbursed for, as well as the gross spread.
- Letter of intent. This letter serves as a preliminary agreement between the company and the underwriter before the IPO price has been set.
- Underwriting agreement. This document is the final binding agreement between the underwriter and the company. It includes a promise to purchase shares at a specified price.
- Registration statement. The SEC requires that all companies going public file a registration statement that shares information about the IPO and the company. This statement will be publicly available to investors.
- Red Herring document. This document is an initial prospectus that includes information about the company and the IPO, but without the offer price and the number of shares.
3. IPO Road Show and Pricing
The next step in the IPO process is what’s known as the roadshow. The roadshow is essentially a marketing strategy where the underwriters and the company present their upcoming IPO. The roadshow serves as a way for potential investors to learn about the company. While individual investors will also invest in the company, the roadshow is more tailored toward institutional investors, fund managers, analysts, and similar parties.
One of the most important purposes of the roadshow is that it helps the company and its underwriters to properly price the IPO stock. They can get an idea of what institutional investors are willing to pay so they can find the sweet spot of maximum profit.
4. Launch and Stabilization
The official launch happens near the end of the IPO process. This is when IPO shares are available to investors. The IPO launch is usually set for a certain date so investors can prepare to buy stock.
The stock price can be volatile after an IPO, so after the launch the underwriters try to stabilize it and ensure it doesn’t fall below the IPO price. Depending on demand, stabilization might mean the company sells more shares than originally planned or that it makes a stabilizing bid in which it buys back some of the shares.
Another stabilizing mechanism in place is a lock-up period, which prevents pre-IPO investors from dumping their shares during the IPO, which could further destabilize the price.
The final stage in the IPO process is the transition to market competition. This stage begins 25 days after the IPO launch and signals that things are no longer in the hands of the underwriters – they are now in the hands of the market.
Who Can Invest In IPOs?
Buying IPO stock can be an exciting opportunity. You have the chance to get in on the ground floor of a company when they first go public. And if you hold the stock for the long term, you’ll enjoy the benefits of their continued success.
However, in the past, IPO shares haven't been widely available and you'd need an “in” somewhere to get your hands on them. Traditionally, there have been two ways for individual investors to purchase IPO stock:
- You’re a client of one of the underwriters. If you happen to be the client of a company that’s helping to underwrite an IPO, then you may have the opportunity to purchase IPO stock. Many major brokerage accounts participate in IPOs and may give their clients the opportunity to invest. However, often IPO underwriters and dealers sell shares directly to institutional investors and high-net-worth clients. As a result, you may not be able to get your hands on any of the IPO shares.
- You purchase stock secondhand in the public market. This is a more realistic option for individual investors. Once the IPO stock is for sale, it will be more widely available as IPO investors will resell their shares. After the IPO, you can keep an eye on your brokerage account to see when shares become available.
Thankfully, a significant shift has taken place in the investing industry over the past few years. There are now several brokers that allow their clients to participate in IPOs. A few well-known names include TD Ameritrade, E*TRADE, Fidelity, Webull, and SoFi.
How to Buy IPO Shares
If you’re one of the lucky investors who have the opportunity to buy IPO stock, then you still need to do your initial due diligence. Here’s a step by step guide to purchasing IPO stock:
- See if you’re eligible. Some major brokerage firms like participate in IPOs and make stock available to their investors. You may need a minimum amount of assets under management to participate.
- Do your research. Buying IPO stock requires even more research than buying regular stock. After all, you can’t simply look at the company’s stock price in past years to see how it performed. Instead, you have to rely on the disclosures and financial statements the company has filed with the SEC. By reading these documents, you can learn more about the company, its leadership, the stock it’s selling, and what it plans to do with the IPO proceeds.
- Request your shares. If your brokerage firm has IPO stock available, you may be required to fill out an indication of interest (IOI) to show that you’d like to buy shares and state how many shares you want to buy. There may be a minimum number of shares you need to purchase. For example, some brokerage firms require your IOI to be for at least 100 shares. Keep in mind, however, that you may not receive all of the shares you request.
- Place an order. Even after you’ve completed your IOI, you’ll still have to place a buy order (in this place, a conditional offer to buy). Once the IPO has been priced, your order will become active.
Are IPOs risky?
Any discussion of how to buy IPO stock should also explore whether buying this stock is a good idea. No matter how successful and well-known the company, IPOs are considered speculative investments. When a company goes public, there’s no record of past stock prices to consider.
Even some of the most successful companies have seen their stock price fall directly after an IPO, which means the IPO investors immediately lose money. Sometimes this happens when the underwriters price the IPO stock poorly. Other times, it just…happens…with seemingly no real rhyme or reason. Stocks prices can move unpredictably, and that's especially true for stocks that are brand new to the market.
IPOs are also notorious for their volatility during the first year, so you should only invest in them if you think that you can stomach some big up and down swings. If stability is important to you, however, you're probably better off sticking with stocks that have a longer track record or investing in diversified funds with one of our favorite stock brokers or robo-advisors.
It’s always big news when a major company goes public and this year has some exciting prospects. With an exciting list of companies expected to go public this year, investors will be keeping their eyes and ears open for opportunities to buy IPO stock.
Investing in an IPO can be a great opportunity for you to get in on a newly-public company. However, it’s important to do your research before you invest and be open to purchasing stock secondhand if you can’t get your hands on shares of the initial IPO.
If you decide to buy IPO stock, proceed with caution. Treat it like the speculative investment it is and only devote a small portion of your portfolio to it. That way, if the stock immediately loses value after the IPO you haven’t done any serious harm to your portfolio.