Insights for Investors by Investors

IPO market set to heat up in the second quarter

•5-Starlink

This year continues to deliver bumper IPOs one after the other, as companies tap both the local and US markets to raise capital at an opportune time.

In total, the Australian Securities Exchange (ASX) recorded 113 new listings last year, totalling roughly $5.2 billion. On a global scale, markets raised almost $300 billion through floats in 2020. Despite a pandemic that brought the global economy to a standstill, record low interest rates, a Buy Now Pay Later (BNPL) business phenomenon and a massive push to “go green” helped fuel a raft of start-ups, renewable energy and green tech firms.

The pandemic-enforced lockdowns also put a rocket under the “gig economy,” that is, a workforce of flexible, temporary, freelancers that connect with customers through online platforms such as Airtasker, Uber, Deliveroo, Uber Eats and DoorDash.

Airtasker (ASX: ART) was among the most significant raisings so far this year, rising 99.2% from an issue price of 65 cents, to be trading at $1.295 at the time of writing. Airbnb (NYSE: ABNB) the vacation rental platform, made its Nasdaq debut last December at $68. The stock was up as much as 200% on its float price and is trading at US$179.50 at the time of writing.

ASX upcoming floats and listings in 2021

Upcoming IPOs to keep an eye out for

  • Coinbase – The largest crypto exchange will list this week on the NYSE. It represents 11% of the whole crypto market.
  • Global Lithium Resources (ASX:GL1 – 10 May) – Its Marble Bar Lithium Project is an emerging lithium discovery in the globally renowned Pilbara region of Western Australia.
  • Lithium Energy (ASX:LEL – 24 May) – Emerging battery minerals company with two projects, the Solaroz Lithium Project in Argentina and the Burke Graphite Project in Queensland.
  • Latitude Financial Services (ASX:LFS – 20 Apr) – Consumer finance business in Australia and NZ, with an offering including personal loans, car loans, credit cards and insurance.
  • Mighty Kingdom (ASX:MKL – 21 Apr) – Mighty Kingdom is the largest independent game developer in Australia.
  • PWA Holdings One (ASX:PWR – 27 Apr) – Australia’s third automotive retailer in the public market. The company is listing at an opportune time, with the car market booming. Like Eagers Automotive (ASX:APE), the business includes property ownership.

Heading to space

Rumours are swirling, people are talking; something big is about to hit and it’s got Elon Musk written all over it. SpaceX is Musk’s aerospace and space manufacturing and transportation company that has become well-known for its revolutionary space technology.

Musk’s aim is to reduce space transportation costs to enable the colonisation of Mars. SpaceX manufactures the Falcon 9 and Falcon Heavy launch vehicles, several rocket engines, Dragon cargo and crew spacecraft and Starlink satellites. Its flagship project, the SpaceX Starship, will be the world’s most powerful launch vehicle ever developed: a fully reusable transportation system designed to carry both crew and to the Moon, Mars and beyond.

What has investors excited however, is Starlink.

SpaceX is building a large internet satellite constellation named Starlink.

The idea is to create a web of thousands of mass-produced small satellites in low Earth orbit (LEO), working in combination with ground transceivers. Starlink satellites will sit in low orbit to reduce latency, while utilising lasers to boost internet speeds. Unlike a land-based copper wire or optical fibre network such as the NBN, no infrastructure is required for Starlink.

Musk’s ambitious project creates a “high-speed internet access across the globe,” unobstructed by ground infrastructure limitations. This type of technology isn’t new and has been around for quite some time. SpaceX and Virgin OneWeb use a different approach by having satellites in low-earth orbit. The end result – fast internet, reduced latency, unlimited bandwidth availability and greater reliability.

The negatives? Cost blowouts. While the land-based optical fibre can be far more expensive – look no further than the $60 billion-plus cost of the NBN  satellite internet costs can easily blow-out due to the scale of satellites required. There are millions of people who don’t have reliable internet access. But when weighed-up against the value of providing internet to people in poor, rural or unreachable areas, the value is immeasurable.

Rumours of a Starlink IPO have surfaced, and investors are awaiting further news. Below are dot points of what we know:

  • SpaceX has 1,443 satellites and is some while away from reaching its initial target of 12,000.
  • A ‘beta’ version is up with data speeds far quicker than previously expected.
  • The project is aiming for 6,000 satellites by 2025 and completion by 2030.
  • The long-term plan is to hit 30,00040,000 satellites.
  • Starlink’s internet service is expected to be fully operational by the end of 2020.
  • Benefits for half the world’s population lacking internet access  the opportunity is huge.
  • Data plan ‘Better Than Nothing Beta’ a one-off US$499 for the equipment.
  • Monthly subscription of US$99.
  • Speeds  150Mpbs and latency of 20ms.
  • Forecast  40 million subscribers. Revenues of US$30 billionUS$50 billion a year from 2025.
  • UBS forecasts a US$10 billionUS$20 billion-per-year revenue opportunity.
  • Morgan Stanley forecasts US$34 billion.
  • Cost and funding  Initial estimates in 2018 were US$10 billion.
    Each Starlink terminal used costs US$1,500.
  • Valuation  Morgan Stanley has forecast Starlink’s valuation to be around US$81 billion.
  • Outlook forecast  364 million subscribers by 2040.
  • Forecast build-out cost  US$240 billion required to build out infrastructure.

Starlink’s IPO is tipped to be one of the biggest IPOs of 2021, if it occurs. With forecasts valued at around US$33 billion ($43 billion) for parent company SpaceX (as at May 2019), Starlink’s valuation will depend on market conditions and the performance of SpaceX.

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