2020 IPO trend: Strong demand expected, Davos panelists say

Dive Brief:

Adena Friedman, CEO and president of Nasdaq, and Stacey Cunningham, president of the New York Stock Exchange, said they expect demand to be strong for IPOs across all industries in 2020.
"We have roughly 30 or so companies that have already filed with the SEC [Securities and Exchange Commission], many more that are talking to us and looking to list in 2020," Cunningham said on the CNBC program Squawk Box last week during the World Economic Forum’s annual meeting in Davos, Switzerland.
If it holds, the trend will mark a change in direction from last year, which was "plagued with some disappointing market debuts and failures to go public," CNBC reported. Some of the biggest names on that list include Lyft, Peloton, SmileDirectClub and Uber.

Dive Insight:

High-profile companies such as Airbnb and DoorDash are widely expected to go public this year, and will likely rely on their CFOs for guidance on timing and execution. Many companies are not yet in positive cash flow when eyeing a potential IPO, yet the ones who fail suffer from "corporate governance not being where it needs to be, and not having a path to profitability," Jason Maynard, senior vice president of global field operations at Oracle NetSuite told CFO Dive in December.

Billionaire investor Paul Tudor Jones said that the stock market today "is reminiscent of the latter stages of the bull market in 1999 that saw a giant surge but ended with the popping of the dot-com bubble," CNBC reported. "We are just again in this craziest monetary and fiscal mix in history. It’s so explosive. It defies imagination," Jones said.

"We are having ... a lot of companies looking to tap the public markets in the first half," Friedman told CNBC.

Despite the promise of a strong year, investors, mindful of last year's underwhelming IPO performance, are careful. "I think what we saw at the end of the year is investors asking questions they hadn’t really been asking before," Cunningham said. "Investors are looking for not just growth, but profits."

Not all IPOs in 2019 fell short; Beyond Meat, which filed in May, had the best-performing first-day IPO in nearly two decades. Beyond Meat CFO Mark Nelson told CFO Dive last year that preparation was key to the company’s success. "A company needs a certain amount of scale … before it can go public," he said. "And it needs to be able to demonstrate financial performance, have several years of audited financials in place, and have enough scale that investors would be willing to invest."

"Right now the pipeline of prospects, IPO prospects, is very strong," Friedman said, pointing out the strong demand for IPOs from tech companies as well as private equity-held businesses.

"The first couple that come out of the gate will really set the tone for the year," Cunningham said. Only a few companies have filed IPOs so far this year, including mattress-in-a-box company Casper and boat retailer OneWater Marine Inc.

Friedman sees the economy as being especially resilient, regardless of 2019’s volatility. "I think that there’s more and more confidence coming into the markets," she said "People feel like it’s the right time for investors to take that equity risk."