Recent history has demonstrated that successful tech industry stocks realise exponential growth and consistently outweigh other sectors. One only has to look at some of the largest and best-known companies in the world like Facebook (NASDAQ:FB), Amazon (NASDAQ:AMZN, Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) to understand that investing in the right technology at the right time will reap substantial returns.
The 2021 IPO season is offering some big names in technology, which will dominate again, but investors will also be looking at those companies that have flourished and will continue to do so, during the pandemic and after the pandemic. Indeed, because of COVID-19, health tech has moved inexorably to the front of the queue for many investors.
Here are our top five IPO tips for educated investors looking for long term windfalls in 2021.
Coinbase is not just a crypto firm, it is a full 360 FinTech story which handles payments, debit cards, trades and VC investments.
It is now a recognised brand with a strong following. Indeed, in the world of crypto, the “Coinbase effect” is fast becoming a colloquialism.
Coinbase is the most respected platform to access the crypto market. All coins listed there get an immediate and huge recognition by cryptocurrency adopters.
Blockchain technology is becoming institutional and besides the recent rise of Bitcoin, cryptocurrencies became an attractive asset class for many institutional investors, mostly in times when liquidity was lacking.
Coinbase offers a good option for investors to get exposure to the asset class. As investors are looking to enter the space, waiting to find the best fit, Coinbase sits at the hedge of retail and institutional clients. High margins and the huge potential of monetisation for its client base make it a definite company to add to investment portfolios.
Uipath is a global software company that develops a platform for robotic process automation and is one of the market leaders in its field.
The current COVID-19 pandemic has hastened the need for automation and has, in turn, brought a huge growth potential for Uipath. COVID-19 was the best challenge to test the company’s automation and its ability for remote working.
The company disclosed that it has over $400 million in annual recurring revenue, a metric that measures its predictable revenue from subscriptions and returning customers. This is music to the ears of investors as strong revenue, growth, having major clients (Uipath boasts 6300 clients worldwide) and diversity across industries are all hallmarks of a company with great potential.
In addition to this, Uipath is now a free cash flow positive company, which is a wonderful thing for a company in the tech sector. “We are on the verge of becoming free cash flow positive very soon, maybe even starting with this quarter, so we don’t need the money from an operational perspective. It was a strategic fundraise”, Co-founder Daniel Dines said, commenting on their recent fundraise.
Public markets are attracted to InsurTech stories (see the Lemonade example) and currently, there are not many listed players in the space. Oscar Health is a top player in the field, with more than 420,000 members across its individual, Medicare Advantage and small group products available in 15 states and 29 US markets.
Oscar positions itself as the first direct-to-consumer health insurance company, where the customer is at the centre of the value proposition. The company's Net Promoter Score is 36, which compares extremely favourably to the industry average of -12. App engagement and downloads are also way higher than industry standards.
The company has also increased partnerships with strategic players, such as their partnership with CIGNA, to provide commercial health solutions to small businesses.
Oscar also has an aggressive expansion plan to deploy its solutions in many other states in the US. In July this year, the company announced that it is expanding its health insurance products into four new states and 19 new markets to sell coverage for individuals and families in 2021.
Better is a company which has streamlined the mortgage process, eliminating fees and unnecessary steps in an attempt to provide people with a more efficient and easier way of buying a home. This has translated into the best rates available. By fully digitalising the process with full automation, it is destined for great things.
The mortgage market is increasing, and loans are in high demand due to the low-interest rates during the pandemic.
The company is focussing on diversity, single women, and minorities – in short, those who have not been served well by traditional banks historically.
Indigo Ag took the third spot on CNBC’s Disruptor 50 list. The $3.5 billion AgroTech company uses AI and machine learning technologies to advance the field of agronomics and contribute to healthier farms across the US.
Looking at the big picture, this is the right company, using the right technologies, in the right space, at the right time - with a combination of technology and sustainability. It is doing this by delivering value for growers and the environment while expanding consumer choice.
It is also disrupting the full value chain in one of the most traditional and archaic industries. It might be one of the first AgroTech companies attracting interest from ESG investment managers.
*NO INVESTMENT ADVICE - The content is for informational purposes only and should not be construed as financial advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, or offer by Fiorenzo Manganiello or Nessim Sariel-Gaon or LIAN Group or any third-party service provider to buy or sell any securities or other financial instruments.
This was a welcome move to protect banks, markets and consumers from illegal behaviour. However, according to Aditya Oak, Principal Consultant at Brickendon, with greater protection comes considerable challenges and risks as financial institutions of all shapes and sizes need to manage what could possibly be one of the biggest banking changes in recent memory.
The transition may be described lightly as a repapering, but there should be no mistaking the fact that in reality, the bedrock on how markets operate is shifting and everyone should prepare for the cracks that may appear.
The long arm of LIBOR
Before dissecting LIBOR’s replacements, we need to appreciate the many levels on which it helps financial institutions with their daily business.
LIBOR is calculated across five major currencies and seven maturities and denotes the rate at which contributing banks believe they can borrow from each other on the London interbank market. It is also the reference point for setting interest rates on an extensive list of financial products. The changes are not restricted to LIBOR, with other jurisdictions such as Hong Kong and Australia considering following suit.
Most importantly, LIBOR helps set rates for hundreds of trillions of dollars’ worth of financial instruments, including swaps, annuities, credit cards and mortgages. It is the global benchmark rate at which banks lend to each other in the interbank market for short-term loans.
However, therein lies the problem. LIBOR has always been an approximate estimate and therefore open to potential manipulation – which became the very reason for its demise.
SOFR so good
This demise will make way for new and multiple counterparts in different parts of the world. SOFR, the Secured Overnight Financing Rate, will be LIBOR’s US dollar market replacement. As it is based on past transactions, it is therefore more accurate.
Daily SOFR volumes are usually between $700 to $800 billion, making it a transparent rate that is representative of the current market across a broad range of participants, including fund and asset managers, insurance companies, corporates, securities lenders and pension funds. It is therefore more protected from attempts at manipulation than LIBOR.
Meanwhile, Alternative Reference Rates (ARR), such as €STR (Euro short term rate replacing current EONIA in October 2019), reformed EURIBOR (Euro Interbank Offered Rate) and SONIA (Sterling Overnight Index Average – GBP), will be replacing LIBOR in their respective currencies.
However, this transition poses substantial challenges. Firstly, replacements like SOFR are based on historical rates, meaning fixings cannot happen until after the market has closed. This means lenders and borrowers will have less certainty about the actual rate at which transactions will be settled, thereby impacting their ability to hedge and then settle transactions.
Repercussions, ramifications and risk rates
This repapering is bound to have a range of repercussions on banks. The International Swaps and Derivatives Association (ISDA) has suggested a fallback to all contracts which will have to be agreed by all market participants. As a result, while banks will stand to benefit from some transactions, they will lose from others.
Another key impact will be the additional workload. Increased regulatory scrutiny and the basic differences between LIBOR and the other ARRs will cause further challenges in transition. For one, while all ARRs are risk-free rates (RFR), LIBOR already includes the risk premium. Buy- and sell-side parties will also need to agree on how to incorporate risk premium into the pricing. Another challenge with this transition will be the calculation methodology for instruments with tenors longer than overnight, as the majority of the ARRs are only overnight rates (with the exception of reformed EURIBOR). LIBOR is quoted for a range of forward-looking tenors (including overnight).
Increased regulatory scrutiny and the basic differences between LIBOR and the other ARRs will cause further challenges in transition.
Even with its flaws, LIBOR worked well in the main, so any replacement with a less tried-and-tested benchmark is likely to have ramifications.
Maturities and managed moved
As with any change, there will be winners and losers. As billions of people, from financial institutions, insurers and banks through to pension holders, retail investors and mortgage holders will be impacted, the time to act is now.
Reports state that more than 80% of the LIBOR-linked financial instruments will mature by the end of 2021, but many will be renegotiated, and the rest will need to be converted. One of the key challenges will be pricing these new products and their associated risk modelling. In addition, the lack of a set deadline will make the changes more gradual and it is likely that each market will move as and when it is ready, ie. if the three-month SOFR rates are reliable, markets will stop using three-month USD LIBOR rates, prompting the partial demise way before the December 2021 deadline. Others that aren’t ready may take longer.
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Testing, technology and transition
As LIBOR makes way for the other rate setting systems, consumer loans are likely to pose problems. With more than 40% of outstanding LIBOR-based residential mortgage loans due to mature after 2021, if not handled correctly, the fallout could be huge.
This change will also impact technology, as the need for new systems and adjusted products arises. Platforms, confirmation matching tools and market data providers will all have to be updated, along with valuation models, interest calculations and market feeds. In addition, there are a lot of dependencies with a range of counterparties, so maintaining good relationships with clients is going to be key to ensure transitions happen smoothly.
As with any change, the key, we believe, is to prepare. Ensure you know what exposure your business has to LIBOR and what your options are for the future. You need to manage the transition and stay ahead of the curve to switch with the market in order to be successful. As always, it is the ones who have prepared who are likely to come out on top.
At Brickendon we are working with a number of clients to ensure they are aware of the impacts the changes will have on their business. We have significant experience in regulatory change and our experts are well placed to help your business prepare to not only limit any impact the changes may have but also thrive from the change.
PwC has released its 18th annual Global Entertainment and Media Outlook 2017-2021, an in-depth, five-year outlook for global consumer spending and advertising revenues directly related to entertainment and media (E&M) content. Rapid changes have created a gap between how consumers want to experience and pay for E&M and how companies produce and disseminate their offerings. E&M companies were accustomed to competing and creating differentiation primarily based on two dimensions: content and distribution. Now, they must focus more intensely on a third: user experience (UX).
Global E&M revenues are expected to rise from $1.8 trillion in 2016 to $2.2 trillion in 2021 at a compound annual growth rate (CAGR) of 4.2% – down from the 4.4% CAGR the firm forecast last year. By comparison, PwC's 2017 Outlook expects US E&M revenues to reach $759 billion by 2021, up from $635 billion in 2016, increasing at a CAGR of 3.6% – holding steady at the same CAGR as last year. While there are increases in revenue, E&M is approaching an industry plateau. Traditional, mature segments are in decline; the internet and digital E&M content is growing though at a slowing rate; and the next wave of content and entertainment is in areas, such as e-sports and virtual reality, which are just beginning to accelerate.
"E&M companies are operating amidst a wave of geopolitical turbulence, regulatory changes and technological disruption. Even if the macro context is set aside, these companies are facing significant pressures on growth," said Mark McCaffrey, PwC's US Technology, Media, and Telecommunications Leader. "In order to thrive in the marketplace, PwC suggests that these companies understand and develop sustainable relationships with consumers to advance their UX. Pursuing a growth and investment strategy to enhance and differentiate the UX will help them flourish in an era where a changing value chain is slowing top-line growth from the traditional revenue streams that have nourished the E&M industry to date. Essentially, we've entered The Age of the Consumer. It's no longer sufficient to be 'consumer-centric,' one must be 'consumer-obsessed.'"
PwC has identified eight emerging technologies as having the biggest potential to improve UX: augmented reality (AR)/virtual reality (VR); artificial intelligence (AI); Internet of Things (IoT); Big Data/data analytics; cloud; 3D printing; access, not ownership; and cybersecurity.
"The next era of differentiation in E&M is being defined and propelled by consumers' increased demand for live, immersive, sharable experiences. Consumers want to get closer, more engaged and better connected with the stories they love – both in the physical and digital worlds," said Deborah Bothun, PwC's Global Entertainment & Media Leader. "At the same time, companies can start to empower those experiences through a number of emerging technologies. Perhaps big data and artificial intelligence will create the most dramatic change, redefining how the industry can connect with all stakeholders and drive growth. We're already seeing a number of ways that AI is being used to personalize, customize and curate entertainment content and experiences at scale."
Key US Entertainment & Media Highlights –
A total of 68M Virtual Reality (NEW) headsets will be in use in the US by 2021 with the installed base growing at a CAGR of 69.2% over the forecast period. In fact, the segment is projected to add nearly the same revenue as TV advertising between 2016 to 2021, a total of $4.6B. VR truly started to reach consumers in 2016 and has no legacy issues or false starts to look back on. The downside is a highly immature market with underdeveloped business models, flaky hardware, and lots of experimental or low-quality content. 2017 should at least see major advances in "inside out" movement tracking and lower cost headsets. It's worth noting VR's close relationship with the gaming market, yet many news and content organizations are pinning their hopes on VR to reinvigorate programming and recapture audiences lost to the internet.
Video Gaming continues to be a paradox: at once a large, growing business and yet a market where firms can fail in record time and new business models arise seemingly from nothing. It is this dynamism that both fascinates and concerns financial markets and partners in media, telco and IT spaces. Video games revenue was $21.0B in 2016 and is forecast to grow by a 6.3% CAGR to reach $28.5B in 2021.
The development of E-sports (NEW) has contributed to the video gaming boom. The nascent genre's revenue is forecast to reach $299M in 2021, from $108M in 2016, rising at a 22.6% CAGR. The US is the largest market in revenue terms, having overtaken South Korea in 2015, although the latter will stay far ahead in terms of per-capita revenue. Not only does the ongoing popularization of competitive gaming by broadcasters bring new consumers into the gaming fold, but the games themselves help to boost online/microtransaction revenues on both consoles and PCs.
Data Consumption (NEW) is forecast to reach 290.7T MB by 2021, up from 117.9T MB in 2016 and representing a 19.8% CAGR. The US will remain the largest market in the world in terms of data traffic in 2021, ahead of China despite the latter's faster growth. The single biggest driver of growth is the increased adoption of smartphones, and in particular the rise of video streaming on smartphones. Video represents 83.4% of all data traffic in 2016, ahead of other digital content (7.8%), and music (3.1%). By 2021, video will account for more than 247T MB of data in the US, some 85% of total traffic.
The US Internet Video (NEW) market is by far the largest and most established in the world, accounting for 47% of global revenue in 2016. This percentage is expected to fall to 43% by 2021 as internet video becomes more established in others regions, although international growth will be driven by US companies' expansion overseas. Internet video will grow at a 9.6% CAGR – the fourth largest US E&M segment CAGR, following Virtual Reality, E-sports and Internet Advertising, respectively – to produce revenues of $18.8B in 2021. Nearly 75% of revenue at this time will be attributable to subscription video-on-demand (VOD) services, with transactional VOD platforms accounting for the remainder.
Internet Advertising revenue in the US reached $72.5B in 2016, comfortably the largest market in the world. This figure is forecast to reach $116.2B in 2021, rising at a CAGR of 9.9%. While it was previously predicted that internet advertising would overtake TV advertising in 2017, the former actually surpassed the latter by the close of 2016. New tech innovations, especially around AI, will create both challenges and opportunities for incumbent players. The introduction of new screens, such as those in connected cars; the rollout of new content formats, like VR; and changes in the way we interact with technology, such as voice-activated search, create opportunities for new ways of engaging with and advertising to audiences. However, all require innovation and investment in order to meet their potential. Separately, the dominant force that is mobile advertising comprised 50.5% of total internet advertising revenue in 2016, rising from 34.7% the previous year and besting the contribution from wired internet advertising in the process. By 2021, PwC expects mobile to account for 74.4% of all US internet advertising.
Cinema revenue will grow over the forecast period by a 1.3% CAGR. Specifically, box office revenue will rise from $10.6B in 2016 – the biggest box office year in all of American history – to $11.2B in 2021, a CAGR of 1.2%. PwC had expected China to overtake the US in box office revenue in 2017, which would have marked this as the first time the US has not held the leading position in an E&M segment. However, the second half of 2016 and the first half of 2017 were much softer at the Chinese box office than had been expected. That said, Chinese cinema revenue is still the most lucrative and the fastest-growing in the world. The big studio blockbusters remain the driving force, but the perennial debate about the three-month exclusive "window" for films in cinemas is intensifying – especially faced with intensifying competition from disruptors.
The Music industry has continued to turn the corner on nearly two decades of decline. The market was worth $17.2B in 2016. Total music revenue is forecast to increase at a 5.6% CAGR to reach $22.6B in 2021. The ongoing growth of digital music streaming – up an astonishing 99.1% year-over-year in 2016 to total $3B – was THE music story of last year as consumers turned in huge numbers to on-demand services. Competition for new subscribers will likely be fierce in 2017. In addition to the uptick in streaming, the live music sector continues to deliver, with fans appearing to have a nearly insatiable appetite for music events and festival brands eager to franchise overseas.
Additional Industry Segment Data Points –
- Book revenue is expected to go from $36.6B in 2016 to $38.3B in 2021 (1% CAGR)
- Business-to-Business revenue is expected to grow from $88.5B in 2016 to $103.0B in 2021 (3.1% CAGR)
- Internet Access revenue is expected to rise from $140.3B in 2016 to $189.8B in 2021 (6.2% CAGR)
- Magazine revenue is expected to go from $30.2B in 2016 to $30.5B in 2021 (0.2% CAGR)
- Newspaper revenue is expected to decline from $29.6B in 2016 to $23.9B in 2021 (-4.1% CAGR)
- Out-of-Home advertising revenue is expected to rise from $9.2B in 2016 to $11B by 2021 (3.7% CAGR)
- Radio revenue is expected to rise from $22B in 2016 to $24.1B in 2021 (1.9% CAGR)
- Traditional TV and Home Video revenue is expected to contract from $109B in 2016 to $105B in 2021 (-0.7% CAGR)
- TV Advertising revenue is expected to grow from $70.6B in 2016 to $75.2B in 2021 (1.3% CAGR)
(Source: PwC)
