5 Interesting US IPOs to Look Out for in 2022 March 15, 2022
An Initial Public Offering (IPO) is the process of a private company going public through the sale of its shares on a stock exchange1.
In 2021, excluding Special Purpose Acquisition Companies (SPACs), there were a total of 2,097 IPOs2 in the US.
The IPOs in 2021 raised US$402 billion in the US, which is 81% higher than the amount raised in 2020.
Tesla’s (TSLA.US) rival, Rivian Automotive Inc (RIVN.US) raised USD $ 12 billion which is the largest market debut since Alibaba Group Holding (BABA.US) in 2014.
Have you ever wondered why investing in IPOs is so attractive?
The main reason for the attractiveness of an IPO can be attributed to the returns investors achieve on listing day.
From 2008 – 2020, an average IPO investor managed to get a return of 9% to 36% just on the first day (Figure A).
Thanks to an IPOs’ ability to generate double-digit returns in a single day, investing in one seems like a “get rich quick” scheme. However, investors need to note that like all investments, IPOs are risky too.
There were many IPOs that soured on debut. For example, Super League Gaming (SLGG.US) produced a negative return of 22.7% on its debut (Figure B).
Similarly, with Smile Direct Club (SDC.US), investors lost 18.9% on the first day (Figure C).
Looking at returns of the last 12 months, investors would have been better off investing in the S&P 500 index.
IPO.US follows the performance of freshly listed US IPOs and it is down around 35.2% while the S&P 500 index is up at about 12% (Figure D).
However, there is a different conclusion when comparing the returns for the last 5 years (Figure E). Here, the S&P 500 index is up at 81.3%, while IPO.US is at 98.9%.
IPO.US used to follow the S&P500 index rather closely, but the relationship broke during the COVID-19 pandemic. The sudden change in behaviour can be attributed to 2 reasons. The first is due to the decades-long build-up of unicorns and Venture capital funding3. And the second is due to the increasing involvement of retail investors in the market.
Investors who invested when the valuation of IPOs were at their peak, would have lost a significant amount. Further, the IPOs in 2021 fell 14% on average six months post-IPO4. Hence, investing in an IPO is not as fool proof as one thinks.
Now that we shared the potential and pitfalls of investing in IPOs, here are the top 5 upcoming IPOs of 2022 in no particular order.
Discord is a free voice, video, and text chat app that is used by millions of people ages 13+ to talk and hang out with their communities and friends5. The COVID-19 pandemic has helped Discord expand its user base. Previously, users of Discord were mainly gamers, but now Discord is used in sports, dating and even investing6.
With the explosion in its user base, Discord attracted acquisition offers from the likes of Microsoft and Twitter. Discord rejected them despite the offers valuing Discord at between US$15 billion and US$18 billion7. The turning down of the offers, suggests that Discord is in favour of an IPO. The IPO could be as soon as early 20228.
In its latest round of funding, Discord managed to raise US$500 million, taking its valuation to US$15 billion9.
2. Impossible Food
Impossible Food was founded in 2011 with the aim of using plants to make meat, dairy and fish10. Impossible’s most noticeable rival in the industry is Beyond Meat (BYND.US) which is valued at around US$3 billion.
Meat and dairy substitutes are gaining traction as consumers become more conscious of the environmental footprint of food11. With this growing trend, plant-based food could make up 7.7% of the global protein market, which is around US$162 billion.
The management aims for a public listing which can value them at US$10 billion12. Impossible had planned to go public 12 months from April 2021 which is rather soon.
With the latest funding of US$ 500 million in November 202113, Impossible is valued at US$ 7 billion14.
Reddit is an American social news aggregation, web content rating, and discussion website15. For those who not aware, Reddit is the home of r/WallStreetBets that created the term meme stocks. The meme stock saga helped Reddit to become better known.
Reddit was started in 2005 and remains unprofitable16 which is common with many public listed companies like Roblox Corporation (RBLX.US)17. But this may change in the future as the management is building its advertising model to attract big brands18.
Reddit did a confidential filing in December 2021 which does not require a prospectus until later in the process for an IPO19. The company has yet to decide on the number of shares for issue. However, it is eyeing a listing valuation of around US$ 15 billion.
Based on its latest funding led by Fidelity Investments, Reddit is valued at more than US$ 10 billion20.
Stripe is dual-headquartered company (San Francisco and Dublin21) that helps businesses accept and send payments online with its application programming interface (API)22. Its customers include Google (GOOGL.US), Amazon (AMZN.US) and Shopify (SHOP.US)23. Stripe has stakes in multiple FinTech start-ups like payroll start-up Check24 and corporate card start-up Ramp25. The investments help Stripe gain market share in the online payment world.
With regard to Stripe’s IPO, the founders think that Stripe is still early in its journey and they are happy with remaining private26. Thus, based on the comments by Stripe’s founders, they may not go public soon. However, people familiar with the matter said that Stripe is in early discussions with investment banks to go public and a listing is possible as soon as this year27.
Stripe raised US$ 600 million in March 2021 and is valued at US$ 95 billion28. With a valuation of US$ 95 billion, Stripe is the most valuable private FinTech company.
Instacart offers users pick-up and delivery services for groceries29. Its marketplace features more than 300 local grocers and retailers. Instacart is backed by well-known firms like Sequoia Capital and Fidelity management.
Thanks to strong backing, Instacart has sufficient cash flow and is not in a rush to list. It was supposed to list in 2021 but delayed this to concentrate on growth and to fend off competitors like Amazon (AMZN.US), DoorDash (DASH.US) and Uber (UBER.US)30. One of the areas which Instacart is expanding into is digital advertising31.
With funding in March 2021, Instacart is valued at US$ 39 billion32.
Should I invest in an IPO?
Ultimately, investing in IPOs is similar to all other forms of investments, where adequate due diligence is required. Also, even a fundamentally strong company is not spared from black swan events. Thus, taking macro key events into consideration could help you take a more holistic decision.
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-  Initial Public Offering (IPO) Definition – Investopedia
-  Analysis: Record IPO binge in 2021 leaves investors hung over.” 24 Dec. 2021
-  IPOs are on track for a record year as companies cash in on sky-high stock prices.
-  Record IPO rush of 2021 led to historically dismal returns for investors with no relief in sight.
-  What is Discord | A Guide for Parents and Educators.
-  Discord is rapidly expanding beyond gaming, attracting suitors like ….” 8 May. 2021
-  Chat App Discord Ends Takeover Talks With Microsoft.” 20 Apr. 2021
-  Discord IPO Could Come in Early 2022: Information for Investors.” 18 Jan. 2022
-  Discord Valued at $15 Billion After New Funding Round – Bloomberg.” 15 Sept. 2021
-  What is Impossible Foods?
-  Plant-based food sales are expected to increase fivefold by 2030.” 11 Aug. 2021
-  Exclusive: Impossible Foods in talks to list on the stock market.” 8 Apr. 2021
-  Impossible Foods raises $500 mln in funding round led by Mirae.” 23 Nov. 2021
-  Temasek-backed Impossible Foods looks to raise US$500m at US ….” 29 Oct. 2021
-  Reddit: Homepage
-  Become an FT subscriber to read: Tech start-ups – Financial Times.
-  Roblox shares dive 21% after earnings miss – Asia Newsday.” 16 Feb. 2022
-  Reddit revamps ad strategy to woo big brands | Financial Times.” 2 Oct. 2019
-  Reddit prepares for stock market listing | Financial Times.” 15 Dec. 2021
-  Reddit is valued at more than $10 billion in latest funding round..” 12 Aug. 2021
-  Our mission is to increase the GDP of the internet – Stripe
-  Stripe: Online payment processing for internet businesses
-  Our customers | Stripe
-  Stripe leads $75m funding for US payroll start-up Check – Silicon ….” 18 Feb. 2022
-  Stripe deepens investment in US corporate card start-up Ramp.” 24 Aug. 2021
-  Stripe ‘Happy’ to Stay Private After Reaching $95 Billion Value.” 23 Nov. 2021
-  Stripe Is Discussing Public Listing for 2022 with Bankers.” 10 Sept. 2021
-  Stripe valued at $95 billion in $600 million funding round – CNBC.” 14 Mar. 2021
-  Instacart Help Center – How Instacart works
-  Instacart pushing off IPO to work on growth – report (Private:ICART).” 16 Nov. 2021
-  Instacart Goes Deeper Into Digital Advertising as Grocery Delivery ….” 6 Sept. 2021
-  Instacart’s valuation doubles to $39 billion – CNBC.” 2 Mar. 2021
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About the author
Chan Zi Quan
Zi Quan is a US Equity Dealer in the Global Markets Team and specializes in the US and Canadian markets. He is an avid crypto fan and is adept in macro analysis.