Tech: Trends and IPOs to watch in 2021

This article first appeared in The Edge Malaysia Weekly, on January 11, 2021 - January 17, 2021.
Bitcoin is increasingly being seen by some as a store of value (Photo Reuters)

Bitcoin is increasingly being seen by some as a store of value (Photo Reuters)

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FEW could have predicted the disruption wrought by the coronavirus in 2020. Indeed, when the virus first began to engulf the world last March, nobody was bold enough to forecast how the pandemic was about to become an accelerant for technologies and tech firms around the world.

Crises tend to have a transformative effect on societies. Covid-19 merely helped accelerate changes that were already in the making from the rise and rise of e-commerce platforms such as Amazon.com, grocery delivery services such as DoorDash as well as digital payment platforms such as Square’s Cash App, PayPal’s Venmo and digital or telehealth providers such as Teladoc Health.

Over the past year, from Singapore to São Paolo, the world has embraced tech that powered work-from-home facilitators such as Zoom Video Communications as well as stay-at-home platforms such as streaming service Netflix, video game software firm Roblox and commission-free, fractional shares, invest-from-anywhere platforms such as Robinhood.

Yet, after a spectacular year, tech now has a tough act to follow in 2021. Despite the arrival of vaccines, the pandemic lingers and the world is still coming to terms with its aftershocks. Moreover, it is still unclear how even an effective vaccine will change long-term consumer behaviour. You would think people would want to touch and feel expensive jewellery. Wrong. Last year, Tiffany’s physical store sales grew just 2% while its e-commerce sales surged 80% as affluent customers bought necklaces, bracelets and rings sight unseen online. Will the Internet of Things, cloud computing and genomics gain momentum in the post-pandemic new normal? Will enterprise software see the first signs of a deceleration in 2021? Will we ever feel safe in crowded places like malls again?

Here are the key things in tech that you need to watch this year.

Regulation

From San Francisco to Shanghai, Big Tech players such as Google’s owner Alphabet Inc, social media giant Facebook, e-commerce behemoth Amazon.com, iPhone maker Apple Inc and software leader Microsoft Corp as well as their Chinese counterparts video games giant Tencent Holdings Ltd, e-commerce leader Alibaba Group Holding Ltd and the world’s biggest fintech player Ant Group Co Ltd are now facing increased scrutiny, at home and abroad, and the spectre of stricter regulation looms. Governments are going after Big Tech companies, which are under threat of being carved up by regulators. The jury is still out on whether Washington and Beijing will succeed in breaking up Facebook, Google and Amazon in the US as well as Alibaba, Tencent, Meituan Dianping and Ant Group in China.

Will the internet Goliaths with their armies of lawyers and highly paid, politically well-connected lobbyists merely make minor concessions, agree to pay big fines and make cosmetic changes to their business models to reach compromise settlements with regulators? More likely, the beleaguered tech giants will cave in to regulators’ demands, trim down, voluntarily abandon some of their monopolistic behaviour and consolidate as they rebuild their tattered reputations.

You are also more likely to hear about Section 230 of the US Communications Decency Act, the 1996 law that helped the internet become as powerful as it is today. Essentially, a key portion of the law says “no provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider”. It protects social media platforms such as Facebook and Twitter or indeed other smaller websites from lawsuits if a user posts something illegal, although there are exceptions for copyright violations, sex work-related material and violations of US federal criminal law. So, Facebook, which has been consistently blamed for promoting hate speech, does not have to worry about legal liability. Both Republicans and Democrats want to change the law, but there is no consensus on how that should be done.

Rise and rise of bitcoin

2020 will also be remembered as the year bitcoin returned to the limelight with a vengeance. From just over US$4,000 per bitcoin at the start of 2020, the price of bitcoin soared to US$30,000 as the year drew to a close. In the first few days of January 2021, it soared past US$35,000. Loose monetary policies around the world in the aftermath of Covid-19 not only helped gold prices but also sent bitcoin surging. Though it is not yet a currency and far from being a safe haven asset, bitcoin is increasingly being seen by some as a store of value. Expect bitcoin to finally break out, go mainstream through easy-to-buy exchange-traded funds (ETFs) this year.

Software consolidation

We are also likely to see a wave of mergers and acquisitions in the enterprise Software-as-a-Service (SaaS) space in the aftermath of last November’s purchase of messaging and productivity software firm Slack by cloud services giant Salesforce.com for US$27.7 billion (RM111 billion). US-listed SaaS firms, which sell software on subscription rather than an outright licence, had revenues of US$130 billion in 2020. The SaaS sector had annual revenue growth of more than 30% last year, and ana­lysts expect 20% to 25% annual growth over the next three years. Venture capital has been attracted to fund nascent SaaS firms because of high growth in recurring revenues. One reason we have not seen too many mergers in the software space is the incredibly high valuations of cloud-based software companies. The norm on Nasdaq is 30 to 50 times price-to-sales for faster-growing SaaS firms. Over the next 12 months, large SaaS players such as Adobe Inc, ServiceNow Inc, Workday Inc and Atlassian Corp plc will make bigger acquisitions to supercharge their growth. Software consolidation will pressure the likes of Microsoft and Oracle, which will be forced to make acquisitions themselves.  

2020 was the year of mega IPOs. While Ant Group pulled its US$39 billion Hong Kong and Shanghai listings at the last minute, more than 200 US IPOs raised a combined US$78 billion last year, compared with US$46.3 billion from 160 American IPOs in 2019, according to Renaissance Capital. Adding in the blank-cheque special-purpose acquisition companies (SPACs), the total money raised for new firms exceeded US$160 billion. Many tech IPOs — such as those of home-rental firm Airbnb, food delivery firm DoorDash, cloud-based data-warehousing firm Snowflake and machine-learning and artificial intelligence software company C3.ai — more than doubled on listing day.

Fintech IPOs

2021 is likely to be another bumper year for new tech listings. Many of the biggest IPOs in the new year will be in the fintech space. While it is unlikely that Ant Group will seek to list again in the new year, several giant US fintech players are expected to list in the first half of the year.

Among them is the US$10 billion listing of Affirm, an online “buy now, pay later” lending platform that helps cash-strapped consumers finance purchases with flexible monthly payments. Think of the firm,  founded by PayPal co-founder Max Levchin, as a combination of a credit card and an instalment payment firm that works closely with merchants. Want to buy US$2,500 worth of Peloton stock? No worries. Peloton will sell it to you on an easy payment plan from Affirm. Investors are also watching the impending listing of millennial-focused commission-free gamified stock trading app Robinhood, which democratised retail investing and was last valued at US$11.7 billion in the private markets. Robinhood is reportedly aiming for a $30 billion valuation upon listing.

One eagerly awaited fintech IPO is Stripe, a burgeoning payment-processing software for online businesses that offers a corporate credit card, business loans as well as software to combat financial fraud. It was last valued at US$100 billion. It could list at a valuation close to US$200 billion.

Another is Chime, a data-focused neobank that provides fee-free financial services through a mobile app. Chime, which offers debit cards and does not charge monthly or overdraft fees, makes money by taking a portion of the transaction or interchange fee charged to merchants when people use its debit cards. It also makes money on high-yielding deposit accounts and has a credit card for millennials and Gen Z customers.

Fintech aside, the other tech theme that investors have been enamoured of is video game software. The launch of new gaming consoles from Microsoft and Sony Corp and the advent of cloud gaming have spurred the demand for games software. Roblox, a maker of game software and creation tools last valued at more than US$29.5 billion, is seeking a direct listing later this month. Users can create games with its software without having to write code. It makes money by selling a virtual currency called Robux, and through a premium subscription service. Revenues grew 68% in the first nine months of 2020 and breakneck growth is likely to continue. Roblox’s IPO comes in the wake of gaming software maker Unity Technologies’ successful listing in September. Unity shares have tripled since its IPO.

Biotech boom

In the aftermath of the pandemic, more venture capital money will pour into tech-focused healthcare this year — not just digital health providers such as Teladoc or healthcare IT services firms but also cutting-edge biotech. Vaccine development that previously took anything from three to 10 years was done within eight months with the three Covid-19 vaccines, one of which went from a formula written on the back of a paper napkin to successful Phase 3 trials in less than seven months. Vaccine rollout in 2021 will help unleash a flood of new venture money to an array of biotech start-ups.

And, oh, there is just one more thing you need to look out for in 2021: Amazon’s spinoff of its giant web service AWS. Amazon might be the “Everything Store”, with a market valuation topping US$1.6 trillion, but 57% of the e-commerce behemoth’s profits comes from its web services platform. Founder Jeff Bezos wants AWS to grow, but its links to the listed parent is holding it back. While the timing of the AWS spinoff is unclear, the world’s largest cloud infrastructure firm is likely to begin its trek towards a listing within the next 12 months. The spinoff will unleash AWS, which will finally be able to draw customers who have shunned it because they compete with its parent Amazon.

AWS, the dominant cloud Infrastructure-as-a-Service company, which is already a player in the Platform-as-a-Service segment, will also acquire other downstream cloud SaaS firms to grow its margins. AWS sees itself as a player involved in an array of cloud services rather than just cloud infrastructure. That will put more pressure on the likes of Microsoft and Oracle. The emergence of AWS as an independent entity will create another tech giant with its own distinct ecosystem. That can only bode well for tech overall.

 

Assif Shameen is a technology and business writer based in North America

 

 

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