Last year's newly public companies were a mixed bag, but 2020 brings a brand new crop of tech IPOs.
Of the highest-profile unicorns that went public last year, we’ve seen several lackluster performances so far: Shares of Uber (UBER) - Get Report, Lyft (LYFT) - Get Report, Slack (WORK) - Get Report and Pinterest (PINS) - Get Report are each off at least 20% since their respective IPOs, while WeWork’s public offering imploded in infamously dramatic fashion late last year.
This year will likely bring less unicorn hype, but several tech firms valued in the multi-billion range are looking to trot out into the arena regardless.
“2019 was an exceptional year as several highly valued but very unprofitable companies went public, or at least tried to go public, and were met with relatively dismal performance by public investors,” said Paul Condra, lead analyst at Pitchbook. “On the other hand, smaller software and tech companies with easier to understand business models and clearer paths to profitability did quite well. Looking forward to this year, I expect successful IPOs will again fall into this latter group.”
Investors have shown an unwillingness of late to fund companies with deeply negative cash flows, Condra pointed out, and companies are feeling the pressure to focus more on the bottom line.
So what does that mean for this year’s pipeline -- and potential IPO hopefuls? Here are a few likely candidates to watch for this year, based on a recent analysis by the research firm CB Insights.
San Francisco-based GitLab is a software platform focusing on a specific niche: DevOps, or developer operations. DevOps is oriented towards helping development teams streamline how they work, and is a growing areas of focus for enterprises: The global DevOps market is projected to be worth $12.85 billion by 2025, according to Grand View Research, and GitLab is among the most established players in the space. Gitlab has raised $436 million since it was founded in 2014, including a $268 million round of fundraising in September 2019 led by Goldman Sachs. GitLab was valued at $2.7 billion at the time, and its founders say it’s done raising money before a planned late 2020 IPO.
As organizations’ data needs have grown, Snowflake is growing fast. The company, which focuses on data warehousing, said that it more than tripled its revenues in fiscal 2019, well outpacing the overall growth of the data warehousing market. Allied Market Research estimates the growth in the market at about 8%, while Snowflake’s revenues grew 237% in fiscal 2019. There are other large players in the data warehousing sandbox -- Amazon, IBM, Oracle and others also offer data warehousing services -- but Snowflake positions itself as the provider best suited for cloud-focused workloads. It’s shown success in attracting new large enterprise customers such as Netflix, and has around 2,500 customers total. Snowflake was last valued at $3.9 billion.
3. Credit Karma
Credit Karma may be best known for its free credit check service, but less well known is its business model. Credit Karma does not charge for any of its consumer-facing services, which include the credit check option and other informational material related to personal finance. Instead, it has an advertising-led model, displaying personalized recommendations for financial products such as credit cards and taking a fee from that institution if a customer signs up. Its annual revenue was last reported at $682 million in April 2018, which missed internal targets. Credit Karma has not announced an IPO timeline, and has delayed that milestone at least once, but was last valued at $4 billion in 2018.
Unity Technologies is a game development engine that bills itself as best-in-class for cutting-edge, high fidelity video games. Given how games are booming, it’s probably not a bad place to be. Unity is reportedly planning a 2020 IPO, and told Cheddar early last year that it was taking in $300 million a year in revenue. In addition to licensing software to game developers, it also earns money from ads placed through its development software -- and that ad network reportedly makes up a considerable chunk of its revenue. Unity CEO John Riccitiello told Business Insider that he sees other uses for Unity’s software, such as in architecture. High hopes for Unity are reflected in its high valuation: $6 billion as of July 2019.
Procore is a software firm that’s led the way in construction tech, a lesser-known but growing corner of the software-as-a-service world. The 17-year-old, 1,800-employee firm isn’t a spring chicken, but has seen its revenues explode in recent years: Procore said last year that it grew its annual recurring revenue from under $10 million in 2014 to over $250 million as of July 2019. It’s also made a run of acquisitions over the past two years in an effort to further expand its footprint in construction management. In September 2019, Bloomberg reported that Procore was working with Goldman Sachs on an imminent IPO, and that the firm was seeking a valuation of $4 billion at the time.