OPINION | IPO Journeys: No standard blueprint applies

The notion that a standard IPO blueprint fits every company is fraught with the risks of oversimplification.

It is sometimes useful to analyse an economy’s state through the lens of what’s happening in the Initial Public Offering (IPO) market. Ceteris Paribus, or other things remaining the same, it is, at times, pointed out that more IPOs during any given period of time should reflect a healthier broader economy.

More companies offering shares for sale in the stock market generally reflects greater need for capital as companies add capacities to meet aggregate demand in a growing economy. Besides, successful capital raising through IPOs is also a key marker to retail and institutional investor appetite.

While, in the theoretical sense, there cannot be much of a dispute over this line of reasoning, one should be careful not to conflate one company's IPO journey against another's using standard tools of assessment.

The notion that a standard IPO blueprint fits every company is fraught with the risks of oversimplification. Distinct industry dynamics, internal complexities, and external market forces critically shape the path to public markets. Successful IPOs stem from understanding and adapting to these unique challenges, rather than applying generic stencils.

Let’s draw from examples, global as well as Indian. Consider the contrasting paths of Snowflake (Data Cloud company) and Airbnb (hospitality platform) in 2020. Snowflake IPO'd in September 2020 at a valuation of $33 billion, surging to $70 billion on its first day. It raised $3.4 billion, reflecting massive investor demand for high-growth SaaS, even with profitability still on the horizon.

Airbnb, IPO'd in December 2020 at a valuation of $47 billion, raising $3.5 billion. Its path was marked by a significant pandemic-induced delay and a pivot to domestic travel, showcasing resilience before its public debut.

Snowflake's hyper-growth trajectory and capital-intensive development meant significant private funding (Series H before IPO), necessitating a large public offering. Airbnb, though well-funded, waited for market stability to ensure a successful listing. Snowflake attracted investors seeking aggressive returns from disruptive technology. Airbnb appealed to those confident in its long-term market dominance and ability to adapt.

In India, Paytm's 2021 IPO, despite its large digital payments ecosystem, was scrutinized for its primary classification as a fintech company with a payments-heavy revenue model, leading investors to question its valuation based on traditional profitability metrics versus high-growth tech company multiples.

Fintech IPOs are increasingly scrutinised for sustainable profitability metrics, robust risk management, and comprehensive regulatory compliance

Tech IPOs are driven by narratives of innovation, significant scalability potential, and projected market dominance, often commanding high revenue multiples from investors prioritizing future growth over immediate profitability.

IPOs of e-commerce companies, such as often-reported Flipkart's anticipated public offering in India, prioritize deep market penetration, robust logistics infrastructure, and adaptability to a dynamic regulatory landscape.

Such companies’ strategy involves consolidating its user base, investing heavily in supply chain efficiencies (e.g., warehouses, delivery networks), and expanding into new categories while adapting to evolving consumer protection laws and digital taxation frameworks to secure an optimal valuation and ensure sustained growth post-IPO.

It can be tempting to draw parallels and make comparisons between prominent companies, especially those under the same corporate umbrella. For example, while evaluating the IPO prospects of PhonePe (which has filed for a mega Rs 12,000 crore IPO), versus Flipkart, such direct comparisons can be misleading. These two entities, despite their shared Walmart parentage, operate on fundamentally different business models.

PhonePe thrives as a dedicated digital payments platform, its core strength lies in facilitating seamless financial transactions. Flipkart, on the other hand, functions as a sprawling e-commerce marketplace, focusing on product sales and logistics, where complexity can be a strength. Their value propositions, revenue streams, and indeed, their entire operational ecosystems, are distinct.

In the final analysis, a company's readiness for an IPO is a highly individualised affair. It hinges on its specific stage of maturity, the prevailing market conditions within its sector, and the unique appetite investors have for its particular business model.

To assume that PhonePe's IPO timeline or success should in any way dictate or even reflect upon Flipkart's IPO journey is to misunderstand the nuanced strategic timelines that govern these major players in the Indian digital economy.

No universal IPO template exists. Companies must align IPO timing and approach with sector realities, legacy factors, and market context to achieve optimal outcomes. The IPO journey is as distinctive as the company itself—success depends on recognising and respecting these fundamental distinctions.