The class of IPOs in May alone have already raked in $15 billion, marking the most raised in one month in nearly five years, when Chinese internet behemoth Alibaba Group Holding Ltd. (BABA) raised $25 billion in its market debut. The record IPOs are likely to keep on rolling, keeping the Street cheering, as a slate of strong performers begin to overshadow recently public Uber Technologies Inc. (UBER) and Lyft Inc. (LYFT), two competitors with their own industry-specific problems.

While Uber and Lyft’s share prices are down sharply from their IPO prices, a long list of other IPOs have performed quite well. The top performers include enterprise software provider Zoom Video Communications Inc. (ZM) and plant-based meat company Beyond Meat Inc. (BYND), which have seen their stock prices jump a whopping 150% and 215% from their IPO prices, respectively, according to a Wall Street Journal column.

5 Top Performing IPOs

  • Zoom Video Communications Inc. (ZM); communications software
  • Beyond Meat Inc. (BYND); vegan food company
  • Fastly Inc. (FSLY); cloud computing services provider
  • Avantor Inc. (AVTR); chemicals company
  • Luckin Coffee Inc. (LK); coffee chain

Source: Investopedia

Bankers Look for Strong 'Unit Economics'

While the beginning of the year was slow on the IPO front, thanks to December’s major market downdraft and the government shutdown – which made it impossible for companies to register new offerings with the SEC – activity has picked up at a rapid pace since March.

Alongside Zoom and Beyond Meat, Pinterest Inc. (PINS) is also still up nearly 40% from its offering price, even after coming short of earnings expectations in its latest quarterly report. On Friday, new listings from content delivery company Fastly Inc. (FSLY), chemical-materials maker Avantor Inc. (AVTR) and tech-enabled Chinese coffee chain Luckin Coffee Inc. (LK), all performed strongly.

A main factor for investors looking at IPOs is their “unit economics,” per bankers cited by the WSJ, meaning their ability to generate revenue on each additional customer or transaction. Strong unit economics increases the chances that a company can turn a profit as it continues to scale up. The inability of newly public firms like Lyft and Uber to turn a profit has ignited much skepticism from a growing group of ride-sharing bears on the Street.

Unicorn Backlog Means Rich Profits for Banks

According to Pitchbook, there are now nearly 100 “unicorns,” a name for privately held companies with a value over $1 billion. While in the recent period, these venture-backed companies have chosen to stay private longer, with the number of unicorns now four times greater than four years ago, they are now being pushed out into the public market, granting employees the ability to cash out on their equity stakes.

Upcoming IPOs include cybersecurity player CrowdStrike, business communications leader Slack Technologies, sharing economy giant Airbnb, co-working community and real estate company WeWork, big data analytics firm Palantir Technologies and payments provider Stripe, according to the Journal, citing people familiar with their plans.

These IPOs should translate into big money for Wall Street’s top underwriters. Outside of their traditional IPO roles, banks are set to make money off even direct listings, wherein a company places existing shares directly on an exchange without raising capital. This is because investment banks charge advisory fees worth about 75% of what they would normally charge for a standard IPO transaction, per the Journal. These fees are then divided among the advisors.

Slack, which is opting for a direct offering, is being advised by Goldman Sachs Group Inc. (GS), Morgan Stanley (MS) and Allen & Co, as well as seven secondary advisors.

Looking Ahead

As U.S.-China trade tensions escalate, igniting another wave of market volatility after a recovery in the first quarter, the IPO space is at risk of derailing. That being said, the backlog of deals is currently so large that deals would likely make a comeback immediately upon stabilization like they did after the December downdraft.