Foodservice technology provider Toast whetted investor appetites for one of the biggest U.S. listings of the year on Wednesday, leading a wave of consumer-focused companies hoping that enthusiasm for them. new technologies will outweigh recent nervousness about the health of the economic rebound.
The offering price of $ 40 per share gave the seven-year-old company an implied market cap of $ 20 billion, more than double the price at which some of its shareholders sold their shares in a public offering of purchase in November. Shares of the company jumped a further 50 percent in early trading on Wednesday morning.
Toast epitomizes the post-pandemic rebound that has pushed stock markets to repeated record highs and fueled a burning market for the initial public offerings so far this year. The Boston-based company primarily generates revenue by taking a share of payments processed through its systems, including portable and desktop cashier devices.
It laid off or put on leave more than half of its staff at the height of the pandemic, but it rebounded as many restaurants turned to new businesses such as door-to-door delivery, and diners rushed to eat out after the lockdowns ended.
Toast is expected to be joined in the coming weeks by companies specializing in everything from gyms and jewelry to pasta sauce and plastic patio furniture. All have benefited from the unexpected strength of American consumers, but they are entering public markets just as concerns begin to mount about whether the resilience will be sustainable.
“Of course, on Monday the markets were choppy and we were paying attention, but we are so convinced of our growth that we tried not to worry,” said Elena Gomez, CFO of Toast.
Like Toast, many of these companies say they will be able to grow even when consumption slows down.
The shoemaker All birds has focused on its internet-driven business model, unlike the high fixed costs of traditional retailers, as has eyewear brand Warby Parker, which intends to go public via direct listing without selling new shares. .
Clothing rental service Rent the Runway, which filed for an IPO in July, claims it enjoys stickier subscription revenues. And all three companies touted their sustainable and responsible business practices.
Gareth McCartney, Global Co-Head of Equity Capital Markets at UBS, said the equity market IPO had been “as good as we have seen it [it] in a decade ”for most of this year. But, he added, “below the surface. . . there’s a slightly more cautious tone that tempers some of the optimism and enthusiasm we’ve seen. This leads to a slightly more selective approach to assets among investors. “
Weak economic data in the United States and China, the spread of the more infectious variant of the Delta coronavirus, and the prospect that central banks will soon begin to reverse stimulus measures have all combined to undermine investor confidence.
On Monday, the US stock market underwent its worst trading day months after concerns over the potential default of Chinese real estate developer Evergrande sparked a global sell-off.
Toast’s IPO prospectus highlighted the risk posed by a more sustained downturn, warning that its primary source of income depended heavily on factors beyond its control, such as the success of its customers’ restaurants and spending levels. general consumer policies.
However, despite the short-term damage it suffered last year, Toast added that the pandemic would give a long-term boost to its business by encouraging an “increased focus on the need for digital solutions.”
“We are confident in the predictability of the industry,” said Kent Bennett, partner at Bessemer Venture Partners and director at Toast.
Jeff Sloan, managing director of Global Payments, a $ 48 billion payments specialist who competes with Toast in the restaurant business, argued that this trend would be bigger than the Covid-19 hit.
“There have been more technological changes in restaurants in the past three years than in the previous 30 years. There is a huge tail wind. . . this more than offsets any impact we have seen in the restaurant business during the pandemic, ”he said.
Sloan added that “I wouldn’t reject the Delta variant. . . I am on [Toast] will have questions about it as we do ”. But he said recent payments data suggests consumer activity is increasing year over year, albeit at a slower pace than in early 2021.
Nearly 300 companies have completed an IPO in the United States so far this year, raising $ 110 billion, according to data from Dealogic. Including the deluge of specialist acquisition companies that have been listed this year, some $ 235 billion has been raised in more than 700 deals.
The total amount raised is already nearly 40% higher than for 2020 as a whole, with dozens more companies expected to be listed before the end of the year.
Some observers are optimistic that the recent increase in market volatility will prove short-lived. Last week, analysts at JPMorgan Chase, for example, said most of the worries that had formed the recent “worry wall” were fading.
Jurrien Timmer, director of global macro at Fidelity Investments, said: “The pent-up demand has been largely met with the reopening of the economy, but consumers are generally [still] fairly flush.
Even prototype consumer goods companies argue that the pandemic brought about structural changes during Covid-19, such as Keter Group, an Israeli supplier of indoor and outdoor furniture that filed for an IPO this month. The company said the pandemic had caused a “‘shift to suburban living.”
“The market has been very open to consumer stories, especially those with a technological overlay,” McCartney said, although he cautioned that “the bar has risen from where we were earlier in the year. “.