A Better Unicorn IPO Leader Board (private draft)

IPOs come up a lot in my day to day conversations nowadays thanks to my day job. Everyone loves to opine on unicorns and IPOs. After a decade of watching them grow up, finally us Main Street investors get to put our hard earn money into them. The most common question I get: how do you even keep track of these things? I was surprised that I couldn’t find a quick and easy dashboard to track unicorn IPO performance, so I built one myself.

Summary: you came here looking for this. Keep scrolling to see why I build it.

FIGURE GOES HERE

Why build yet another unicorn IPO tracker?

Always up-to-date

It’s 2020, a good leader board should contain all the latest unicorn IPOs, and with up-to-date performance data. I see found a few unicorn IPO charts and infographics being passed around, like this popular one from Howmuch. It’s supposed to be “The Hottest IPOs in 2019”, yet it was published in July 2019 with data from June 2019. Never mind that Snap IPO’ed in 2017. Sure a jpeg is easy to share, but this completely defeats the purpose of publishing on the web.

International IPOs

An IPO leader board isn’t complete if it only contains American unicorns. Half of the current top 10 decacorns, unicorns with more than $10 billion valuation, are Chinese. A wave of Indian unicorns like Paytm and OYO are joining the herd. We in America are increasingly impacted by international tech unicorns like Bytedance with its TikTok app. Also, why not keep an eye on other fast-growing markets and companies that I can put my money in? It’s so much easier to make international investments nowadays.

Apple-to-apple time comparisons

Folks on Wall Street like to talk about the “IPO pop”, the difference between the IPO price and the day-one closing price. It’s a good gauge of how well the IPO pricing process went. Company management and bankers spend weeks narrowing down the IPO price range based on select investor feedback, then the market with its scale and efficiency shows how right they are.

The other important milestone is when the lock-up period runs out 90 ~ 180 days after the IPO. This means the company insiders are allowed to sell their stock. If things aren’t going well with the company, you bet they’ll be doing that ASAP. By the end of the lock-up period, the greenshoe options used to stabilize the stock price also ran out. Without these artificial impacts to the supply and demand, the market more efficiently reflect the company’s true worth through its stock price.

Public market valuations, certainly after a stock has traded for a material amount of time and lockups have come off, are much more rational.

― Fred Wilson, The Great Public Market Reckoning

To compare unicorn IPOs with an apple-to-apple time scale, the Leader Board shows stock price performance at 1-day and 1-year. By then, the lock-up period is over, the company has a few quarters of performance numbers under its belt, and the stock price is more stable. For IPOs that haven’t traded for a year, it shows the latest price performance. Another benefit of looking at the 1-year mark is that this is when you pay the much lower capital gains tax, not the income tax, after you sell.

This tech IPO tracker from Recode contains up-to-date performance data, but still suffers from not having an apple-to-apple time scale. You can’t compare a 5-year old IPO’s current performance to that of a 5-day old.

Know whether an unicorn is just riding the bull market

If you got into the Spotify direct listing at $132 a share, you may be grinning a year later at it’s 9% return. It’s no Netflix, but at least it’s better than Pandora. Did you know that if you were to put your money in S&P 500, you would’ve been even better off with a 10% return?

The Unicorn IPO Leader Board uses a simple solution: subtract the market (S&P 500) return out of a stock’s price return. Even Chinese companies are adjusted for S&P 500. For U.S. investors like me, S&P 500 is an easy way to invest. If I invest in a foreign unicorn, I’m usually interested in that specific company, not looking for a way to park my money in a different international market. So if that unicorn doesn’t perform as well as the U.S. market, I’d just move my money back home.

The most the stock market moves by in a year is about -10% to 20%, apart from rare events like the 2008 Great Recession. Because of this, taking out the gap between stock performance and market performance is the most meaningful to those unicorn stocks straddling the break even line.

What IPOs are tracked on The Unicorn IPO Leader Board?

To be on the Leader Board, companies need to be valued at 1 billion U.S. dollars, usually determined by the last funding round before the IPO. Some “undercorns” with valuations dipping below $1B during the IPO pricing process are also included. Casper is a good example.

Direct listings like Spotify and Slack are also included. Companies on the Leader Board don’t need to trade on an U.S. exchange.

I take out companies that were acquired, went private, or shut down. An example is Pivotal. VMware bought it a year and a half after its IPO.

Please reach out if you find anything missing.

Top 10 unicorn IPOs to look forward to in 2020 & beyond

The new decade just started and is already full of excitements, with the Australian fires, the drone strike that thankfully didn’t start World War III, the Wuhan coronavirus outbreak, and Brexit finalized. And we have an U.S. presidential election coming up that’ll cause many in the markets to take a wait-and-see approach. It’ll be interesting to watch when and how the next wave of unicorns go out, like these top 10 decacorns:

Ant Financial 蚂蚁金服 $150B
Bytedance 字节跳动 (parent company of TikTok 抖音) $75B
Didi Chuxing 滴滴出行 $57B
Stripe $35B
SpaceX $33B
Airbnb $31B
Kuaishou 快手 $28B
JD Digits 京东数字科技 $27B
Palantir $20B
JUUL $20B

Data sources & further reading

Public market data come from SEC filings and Google Finance. The latest valuation data come from Pitchbook.

Here are 2 alternatives to the Unicorn IPO Leader Board. To me they’re either TMI, or suffer from problems like not actively updated. If you want to make your own, I’d use your favorite portfolio tracker / watch list tool instead.

Here are 2 sources to track pre-IPO unicorns:

The Billion Dollar Startup Club by The Wall Street Journal and Dow Jones VentureSource: this is a good public and up-to-date source of unicorns that haven’t IPO’ed yet. The opposite of this Leader Board.
The Prime Unicorn Index: an equally-weighted price return index that measures the share price performance of U.S. private companies valued at $500 million or more.

Scary disclosure: I write about things I may invest in. You should also do your own research before investing.

Photo of the Børsen spire by Pierre Châtel-Innocenti.

February • 2020

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