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WSJ Your Money Briefing
2019 Could Bring a Flood of Tech IPOs
00:08:12
Several highly valued tech giants are poised to enter the IPO market in 2019. Wall Street Journal reporter Maureen Farrell explains how next year could rival 2000 and see records broken in terms of IPO dollars raised.
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With youh Money Briefing I'm JR Whalen at the Wall Street Journal in New York. When we turn the calendar to 2019 in a few months, there's a good chance will be on the cusp of a flood of tech IPOs. We'll have details in a moment. First, these money and market stories you should know. Fair Isa Corporation, which is the creator of the widely used FICO credit score, is planning to roll out a new scoring system early next year that will factor in how consumers manage the cash in their checking, savings and money market accounts. The Ultra FICO score will be designed to boost the number of borrowers approved for credit cards, personal loans and other debt by factoring in a history of cash transactions that could indicate how likely an applicant is to repay. The new score is fico's latest answer to lenders that have been clamoring for a new way to boost loan approvals and Sales of previously owned U.S. homes declined 3.4% in September from the previous month to a seasonally adjusted annual rate of 5.15 million. A shortage of homes for sale at a time when continued job and wage growth are supporting demand have contributed to a rapid run up in home prices. And meanwhile, mortgage rates have risen in the past year and they appear to be nearing 5%. That's a threshold analysts say could deter many from purchasing a home. The average interest rate on a 30 year fixed rate mortgage in September was 4.63%. That's up from 4.03% in January. And the median sale price for an existing home in September was $258,100. That's up 4.2% from a year earlier. 2019 could shape up to be the year of the tech ipo, with a slew of startups gearing up to go public. And Wall Street Journal markets reporter Maureen Farrell is here with details. So Maureen, there are quite a number of tech names on the sidelines waiting to see IPO action, and they could make 2019 a record year.
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Yes, it looks like it's shaping up to be a really huge one. We're seeing a number of these companies taking concrete steps towards the IPO market this year in preparation. Some of the names we expect to see are Uber, Lyft, Palantir, Slack, the messaging platform. The numbers are going to be pretty staggering. I mean, just Uber alone. We've heard evaluation that bankers have talked to them about that they could be worth about $120 billion. So if you just look at what a typical tech IPO raises, how much of the shares they sell, they could raise about $25 billion, up to which is roughly half of what was raised in the highest year on record, which was 2,000.
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That's enormous money.
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Enormous.
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This is a significant change. As you point out in your story, many of these companies have relied on private sources for cash, and up to this point, that's more or less kept them away from the public spotlight.
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Exactly. They've raised more money than any other crop of companies ever had, and it's allowed them to get very big. I mean, the $120 billion Uber valuation, if true, would be one of the biggest ever by far. So we're seeing kind of a different crop of companies come in, these mega unicorns, so to speak, that would be entering the public markets that have consumed a lot of capital for the most part, are still losing money, but they're giant, giant companies.
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So some of the tech names that could go public next year have had great success through rounds of funding. Many observers will want to see if their valuation holds up and can be exceeded by the valuation they find after their ipo.
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That's been a huge question, and that's been a lot of what's kept so many of these companies out of the private market, the public market, too, is that they had these huge valuations. Uber's was most recently around 76 billion. And people for years had asked, like, come on, are they really worth it? How big are they going to be? They've done that with a lot of the other companies. And a lot of companies went public over the last few years, smaller ones at lower valuations. Now that's not the question anymore. Who knows what happens to the market in the next six months or so? A lot could change right now. Uber, for example, last valued at $76 billion. Bankers are talking about up to $120 billion. That would be obviously a very significant jump.
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Many of these tech names we're talking about are household brands that could also attract money from investors from varying walks of life. Not just the institutional investors, but somebody who might be more close to the retail level.
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One of the arguments we've heard or frustrations about companies that have stayed private for so long is the average investor, the retail investor, hasn't had access to Uber. On the way to getting to $120 billion, you could invest some of the mutual funds people can invest in and they might have an allotment to Uber, but you couldn't directly buy shares unless you were a high net worth individual. That's going to change. Yes, they'll be able to buy right into these companies. But again, I guess the frustration could be that a lot of people have been locked out until now. You couldn't ride that growth like say someone did Amazon back in the day and make a thousand times your money.
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It's not like these are going to be server companies or maybe companies that are part of the circulatory system of technology. These are companies that a lot of people, especially in large cities, have heard of, like Uber and Lyft. Like you said, people in the workplace would understand what Slack is. There's a familiarity there for investors.
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Exactly. They're going to be buying in with a lot of different things in mind. They'll be looking at the financials, but also knowing the power of the company and how their lives personally have been changed by these companies.
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There's also something unsettling in the story you wrote with your colleagues. In some cases investors are overlooking ambitious valuations, in some cases zero earnings by some tech companies, all while they're chomping at the bit waiting for these IPOs to happen. Seems like we've seen this movie before.
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Yes, during the dot com boom. There are definitely echoes in potentially next year. Just how much will be raised. The difference, I would say, and yes, the unprofitable companies. The difference now is these are big, big giant companies. An Uber is unlikely to just evaporate like a pets dot com. Whereas then these companies were going public back in 1999, 2000, before the tech bubble burst, they would be a few months old and then be going out there raising a ton of money at these crazy valuations. The valuations, whether or not people agree with them, whether they can hold up longer term will be a question. But if they go out at high valuation, it's not like Uber is not an ephemeral business. It's like one that's chained, it's global, it's huge. So yes, investors are definitely in a mode, at least we've seen this year with all the tech companies that have been going out not worried about losses, much more focused on how big can they be. Let me not miss out on this huge growing company that's been more the mindset than any risk aversion. We'll see if that continues next year. There are definitely echoes in some ways, but it's not the type of companies we're not really seeing any. Even new companies come out. There's a lot of revenue, a lot
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of losses, but there's some revenue there to back it up.
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Yeah, a lot of revenue in most cases.
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All right. That is Wall Street Journal markets reporter Maureen Farrell joining us here in our studio. Maureen, thanks for being with us.
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Thanks for having me.
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And that's your money briefing. I'm JR Whalen in New York for
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