There is something interesting happening in the technology sector worldwide. We are all aware of the digital shift and how companies like Google, Facebook, Apple, Microsoft, and Amazon are creating unmatched wealth in the global markets. Back in India, TCS is now worth nearly $105bn and continues to grow. And if you look at the stock market’s performance in the last one year, the tech-laden NASDAQ, as shown below, has been the clear winner.
Star technology IPOs are few and far between. In the last 20 years, we have seen some big technology IPOs like Google, Amazon, Facebook, Twitter, Alibaba, and many more. The focus, therefore, shifts to the big IPOs in the year.
Let us look at four US IPOs and one Chinese IPO that could be quite significant from the IT sector point of view.
It is extremely unlikely that you would not have experienced Dropbox’s cloud storage at some point in the last five years. The stock was listed in March 2018 at a valuation of $10bn and has appreciated 40% since its issue. There are two reasons for investors to track the performance of the Dropbox IPO.
Firstly, with 500mn registered users and over 11mn paid users, Dropbox has surely managed to translate its eyeballs into revenues. To that extent, it is doing better than its listed cloud storage counterpart -- Box Inc. Secondly, Dropbox has a stiff challenge as it is up against the likes of Amazon, Google, and Microsoft who are offering their captive cloud storage and have the added advantage of a massive captive audience.
How Dropbox uses the IPO proceeds to take on competition and how it leverages equity as a currency will determine its future. Remember, in the last few years, Facebook could leverage its IPO substantially, but Twitter has faltered when it comes to translating its user base into a revenue model.
To be fair, Airbnb turned the hospitality industry globally on its head. Airbnb was originally conceived as a bed and breakfast (hence bnb) for travelers to get a good night’s sleep and a nice warm breakfast. Over the last five years, it has metamorphosed into an example of why owning the network is more important than owning physical assets.
Unlike international hotel brands like Marriott, Hilton, or Hyatt, the unique feature of Airbnb is that it does not own any properties. It just owns the network that gets buyers of space and sellers of space together. And Airbnb has enabled millions of hassled travelers to find a living place while countless home-owners are able to monetize their space.
At last count, Airbnb was worth $32bn, ranked just below Marriott in the hospitality industry in terms of market cap. Airbnb could be a test of this network theory and may be relevant for Uber when it plans its IPO in 2019 or later.
Spotify runs one of the most respected and valuable digital music streaming services, which gives you access to millions of songs, podcasts, and videos from artistes all over the world. The Spotify offering has a free access and a premium access.
Spotify is already valued at over $16bn and is expected to come out with an IPO soon. The unique feature of the Spotify IPO will be that it proposes to do a direct IPO without involving an investment banker.
Spotify has nearly 60mn paid subscribers and hence selling the IPO directly to customers may not be a problem. If this method succeeds, then it could set a template for the future and hence, this IPO needs to be watched.
WeWork typically represents an enterprise of the future. WeWork’s annual revenue was $1bn with a market cap of $20bn (based on its last fundraising). It has expanded into Asia and Latin America and boasts of over 1,20,000 members. While this is not your typical tech company, WeWork provides the right environment to tech start-ups to incubate.
If the WeWork model really works in a big way, it could change the way companies look at real estate investments in office spaces around the world. Shared workspaces, co-working, and start-up subcultures could be the ideas for the future. And the company has already indicated that its IPO may not be far away.
It is the only Chinese company in the list and is far from being a hard-core tech company. It is actually a hardware company that makes smartphones and competes with Apple and Samsung, but in the lower end of the market.
Technology IPOs are nothing new in China. Alibaba and Tencent already boast of market caps close to $500bn, while Baidu and JD.Com are closing in on $100bn. Xaomi will be interesting because of its wafer-thin margin business. It is not only less profitable compared to Apple and Samsung but also earns only a fraction of the profits of local brands like Oppo and Vivo. But Xaomi is valued at nearly $100bn and could be crucial to the tech IPO fortunes.
India has its share of unicorns like Flipkart, Ola Cabs, and Paytm, but they may still be some time away from an IPO. For now, the tech story for 2018 will still be global (mostly American).