Fintech, or financial technology, is a growing field and has been one of the biggest gainers of the pandemic. Loosely, fintech companies provide technology solutions for payments and other financial transactions. The leader in the field is PayPal (PYPL 0.50%), which pioneered digital payments, and an upcoming disruptor is Square (SQ 3.24%), whose stock gained nearly 250% in 2020.
As these companies grow, they often get significant funding from venture capital firms, and eventually issue stock in an initial public offering (IPO). It's often profitable to buy shares in an IPO, since the price can escalate quickly, usually ending the first day of trading significantly higher than the offering price. For example, in the latest hot IPO, Airbnb (ABNB 2.29%), shares were originally priced at $68 but closed at $144 after the first day of trading.
It's not always simple to buy shares of an IPO, since asset management or investment firms usually get first dibs on bulk quantities. Sometimes it's prudent to wait on IPOs, since they might show inflated early prices and then fall -- which is what happened to Airbnb. But if you believe in a great company's long-term prospects, the earliest you can buy in can often net you the largest gains.
Marqeta, Instacart, and Stripe are three fintech companies that might be coming to a trading platform near you.
The technology behind financial technology
Marqeta offers digital payment technology for digital banks and customizable credit cards. It works through an open API platform that allows customized options for each company, and it offers cutting-edge solutions such as just-in-time funding, where companies can authorize their own employees' purchases for real-time cash flow management.
The company has had a partnership with Visa since 2017, and it recently expanded a collaboration with Mastercard. It counts among its clients companies like Square and DoorDash.
Marqeta is in talks with Goldman Sachs and JPMorgan Chase, for which it also provides virtual credit cards and tokenization services, to underwrite shares to go public in 2021, according to Bloomberg. After a recent round of $150 million in funding, the company is valued at $4.3 billion.
A highly anticipated debut
Instacart is definitely one of the mostly hotly anticipated public offerings of 2021. The delivery service, which has partnerships with more than 500 companies and their 40,000 locations, had skyrocketing sales during the pandemic as its services were even more in demand. After another $200 million in funding, the company is worth $17.7 billion as of November.
Instacart has already hired Goldman Sachs to underwrite its IPO, which could debut in early 2021, according to CNBC. The news came just after the announcement that California voters had passed Proposition 22, which protects the rights of gig workers, an integral part of Instacart's operating model.
The company has grown beyond its core grocery segment and now has deals with Walmart, cosmetics company Sephora, and electronics store Best Buy.
Will it or won't it?
Stripe's digital payment infrastructure is the foundation for many e-commerce businesses, such as Wayfair, Peloton Interactive, and Amazon.
It offers customized software-as-a-service (SaaS) plans that help businesses operate with options they need, such as Express Pay for Lyft, which lets drivers cash out instantly. It recently launched Stripe Treasury, which gives clients more banking services to embed into their software.
There's been hype about a Stripe IPO for a long time, as other companies like Square have gone public. Stripe is getting a new round of funding that increases its value from the current $36 billion to double that, or even as high as $100 billion, according to Bloomberg.
This could help Stripe continue operating as a private company, making a public offering less likely. But the company has been in talks about a possible SPAC (special purpose acquisition company) merger to take the company public.
Wait and see
It'll be interesting to see which of these companies actually moves forward with an initial public offering in 2021. With so much success in the IPO market in 2020, though, it's a good bet that at least one of these three will pull the trigger and go public this year.