After a tepid 2016, the Initial Public Offering (IPO) market has been rejuvenated in 2017, primarily on the back of the recent $24 billion Snap Inc. IPO. Snap’s public market debut was the biggest technology IPO since Alibaba’s in 2014 and the second-largest U.S. technology based IPO ever, behind only Facebook (FB - Free Report) , its closest competitor and a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Snap’s blockbuster IPO clearly demonstrated investors’ pent-up demand for technology companies. The loss-making company sold 200 million non-voting shares for $17 per share, above the expected range of $14–$16. Shares were up a massive 44% from its IPO price at the very first day of trading.
Snap’s hit IPO has opened up flood gates for the next round of public money seekers. This includes the likes of Mule Soft, Alteryx, Carbon Black, AppNexus, Forescout, and Cloudera, all of which are primarily tech unicorns (emerging technology companies that have a valuation of more than $1 billion).
However, two high profile technology companies – Uber and Airbnb – are not expected to debut this year as both of them have raised funds in recent times. Reportedly, Uber raised $3.5 billion from the investment arm of Saudi Arabia in Jun 2016. Airbnb recently closed $1 billion in funding, which puts the company’s valuation at $31 billion.
Technology IPO Market is Hot
Although Snap’s recent price slide is a deterrent to IPO investors, we note that most of the issues are company specific. In fact, we believe that the current macro-economic environment is most conducive for IPO investing based on President Donald Trump’s plan of spending $1 trillion on U.S. infrastructure overhauling along with regulatory and tax reforms.
We note that lowering of tax rate from 35% to 15% – as proposed by President Trump during his campaign days – will be beneficial to small and mid-cap companies, particularly in the technology sector. This will surely attract IPO investors to this market going ahead.
The IPO pipeline remains strong as evident from recent Renaissance Capital data, which showed that 25 IPOs have already been filed this year, up 13.6% compared with the same period last year. Moreover, technology trails only healthcare in filing most IPOs in the last 12 months.
Further, ongoing consolidation in the technology market provides a significant opportunity for investors to buy new stocks that have significant growth prospects over the long term.
Tech IPOs for the Rest of 2017
If a favorable environment prevails, there are a number of privately funded technology companies that can taste the appetite of IPO investors in the rest of 2017. Among them, we would love to see the following five company’s debut this year.
Headquartered in San Francisco, Cloudflare offers content distribution network (CDN) and distributed denial of service (DDoS) mitigation services. Per VentureBeat, the company has more than 4 million customers including the likes of Cisco (CSCO - Free Report) , Nasdaq among others. In Sep 2015, the company raised $110 million from strategic investors like Google Capital, Microsoft (MSFT - Free Report) , Baidu (BIDU - Free Report) and Qualcomm (QCOM - Free Report) .
Another San Francisco-based company Dropbox has been a IPO candidate for a long-time. Dropbox is a file backup service that offers cloud-based file management, storage systems and client software. It enables users to access and synchronize files, and use applications through multiple devices. The company boasts of more than 500 million users. Per Tech Crunch, the company had raised $350 million at a valuation of $10 billion way back in 2014.
Palo Alto-based Palantir Technologies analyzes Big Data and is best known for two different software projects – “Palantir Gotham” and “Palantir Metropolis”. It also offers a wide variety of solutions related to fraud identification, homeland and cyber security, disaster preparedness, and investing. Numerous government agencies are its customers. Late 2015, the company completed a funding round that raised $880 million and put its valuation at $20 billion. (Read More: Will Peter Thiel's Palantir Technologies Be the Best IPO of 2017?)
Headquartered in San Francisco, cloud-based office messaging tool provider Slack was valued at almost $3.8 billion in Apr 2016, when it raised $200 million from a list of investors that include Andreessen Horowitz and Google Ventures among others. The startup is a competitor of Microsoft Office 365 as well as Atlassian’s HipChat. Per Recode, the company has two million active daily users and 800,000 subscribers.
Music streaming service provider Spotify had been valued at over $8.5 billion in 2016, when it raised $526 million. Per Reuters, investors included Northzone, Creandum, DST Global and Accel Partners. The company has almost 50 million paid users in around 60 countries. The service continues to expand with recent launch in Japan. However, the company faces significant competition from Apple (AAPL - Free Report) Music. (Read More: Will Spotify Stream Into an IPO in 2017?)
Hear more about the current state of the IPO market on the latest episode of the Zacks Friday Finish Line:
Zacks' 2017 IPO Watch List
Before looking into the stocks mentioned above, you may want to get a head start on potential tech IPOs that are popping up on Zacks' radar. Imagine being in the first wave of investors to jump on a company with almost unlimited growth potential? This Special Report gives you the current scoop on 5 that may go public at any time.
One has driven from 0 to a $68 billion valuation in 8 years. Four others are a little less obvious but already show jaw-dropping growth. Download this IPO Watch List today for free >>