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  • The Investing Week Ahead: 1/10/22

The Investing Week Ahead: 1/10/22

Join me as I highlight the most important topics to attack the investing week ahead.

10 Jan

Damn… I guess the holidays are officially over. The good news is that 2022 is going to be a killer one here at Rate of Return. We’ve got some awesome things cooking up behind the scenes and are looking forward to sharing special experiences with you all.

Before diving in, a warm welcome to the 67 of you who have joined us during the last few days!

The markets took a beating to start the year — let’s check out what to keep an eye on during this investing week ahead of us.

Upcoming:

  • Tuesday (Jan. 11) — Retail Stocks Update feat. Olaplex (OLPX)

  • Wednesday (Jan. 12) — Chainlink Thoughts for 2022 and an NFTs Update

  • Thursday (Jan. 13) — Crypto Taxes Post and Twitter Spaces with Sylvia Jablonski of Defiance ETFs & Chris Sommers of Unhedged 

  • Friday (Jan. 14) — My Favorite Stocks Right Now

  • Saturday (Jan. 15) — Social Media Recap

  • Sunday (Jan. 16) — Week in Review

Really excited to host a Twitter Spaces with Sylvia and Chris at 2pm ET on Thursday. They’re both brilliant and we’ll be talking through the markets as a whole after the recent Fed activity. If you want to be reminded when we’re live, you can set a reminder through the Tweet below.

I’ll also send a reminder through Finary and our texting community: 615-802-9495

In this post, we’ll cover:

  • Hot IPOs taking place this week

  • Quarterly financial reports worth reading

  • Investor events to keep an eye on

  • Major economic releases

The Investing Week Ahead - Too Long, Didn’t Read:

One of the most anticipated IPOs of 2022, the year’s first earnings reports from both the financial & semiconductor industries, the ICR Conference will be filled with companies you love, newly-printed inflation data, updated jobless claims, and retail sales look to trend back upward.

IPOs to Watch this Week:

Alongside Reddit, TPG serves as one of the year’s major IPOs in the red-hot investment management space. However, don’t let this take away from the public debut of the fastest growing HR tech company in the country.

  • TPG Inc. (TPG)

This Fort Worth, Texas and San Francisco-based private equity firm founded “to invest client funds into alternative asset markets to generate superior risk adjusted returns over long time-frames” is planning to raise as much as $877 million through an IPO.

The offering is expected to priced between $28 to $31 per share.

Founded as Texas Pacific Group in 1992, TPG’s first investment was into then-bankrupt Continental Airlines in 1993. Over the next decade or so, the firm made losing investments across the casino, energy, and financial sectors. After the 2008 financial crisis, TPG decided not to follow suit with rivals Apollo (APO), Blackstone (BX), and KKR & Co. (KKR) — resisting a stock market listing and repositioning the company for future success.

Some 13 years later, TPG’s has had winning investments in Airbnb (ABNB), Spotify (SPOT), and Uber Technologies (UBER).

The company generated $1.99 billion in revenue in 2019, $2.11 billion in 2020, and is on track to rake in over $5.10 billion in revenue during calendar year 2021 — with nearly 45% of that to be realized as profits.

TPG currently has $109B+ in AUM (up +21.1% YoY). For comparison — Apollo has $481B+, Blackstone has $649B+, and KKR with $252B+.

Through this IPO, TPG is seeking a valuation as high as $9.5 billion. For further comparison — Apollo’s current market cap is $52.2B (+47.0% over past 12 months), Blackstone’s is $139.9B (+84.5% over past 12 months), and KKR’s is $40.7B (+73.0% over past 12 months).

Unlike these rivals — who retained their partnership structures after their IPOs before converting to C-corporations due to 2017 tax cuts — TPG will debut in the public markets as TPG Incorporated (formerly TPG Capital). The ‘corp. conversion’ of the rival private equity firms aided in their soaring valuations over the past couple of years, so TPG decided to go forward with the change ahead of its public offering.

As you may recall from my Mega-Caps Portfolio Update, I currently have a sizable 6% of my stock portfolio in KKR. With the companies listed below in TPG’s portfolio, it’s impossible to ignore this IPO or building a position:

Acorns, Airbnb, Burger King, Calm, Cushman & Wakefield, Ducati, Fender, McAfee, Neiman Marcus, Novotech, Petco, SurveyMonkey, Spotify, Uber, Vice, & ZScaler

The list goes on and on, with categories of investments including the following:

Consumer & Retail, Financial Services, Healthcare, Industrials & Services, Internet & Digital Media, Real Estate, & Technology

Keep in mind that TPG becoming a public company means we’ll now have an inside-look at their financials like never before. I will likely wait until the company’s first earnings report to make a better-informed decision. Regardless, I’m excited to see this IPO take place and we’ll report back on this one extensively.

If you want to do your own research, here is their S-1.

—

  • Justworks Inc. (JW)

This New York City-based software company founded to “develop a SaaS platform to assist small and medium-sized businesses with their HR, benefits, payroll, and compliance operations” is planning to raise $244 million through an IPO.

The offering is expected to price between $29 to $32 per share.

The company generated $742 million in revenue during fiscal year 2020 (ended May), and $983 million during fiscal year 2021 (ended May) — with roughly 11% gross profit margins.

The company’s bread and butter are the over 30 million small businesses in the US — specifically those with less than 100 employees, or a total employee base of about 40 million. The company operates as a “professional employer organization” with its online platform, but can also provide a la carte services to those small businesses that want to manage their processes directly.

Their dollar-based net revenue retention rate during their most recent reported quarter was 117%. This number will surely continue growing as the total human capital management market (valued at $22.5 billion in 2022) expands — currently growing +9.2% compounded annually.

The main drivers for this continued growth are the need for standardization of the processes of main HR activities, talent, workforce management, advancements in cloud technologies, as well as the adoption of mobile technologies.

This company is really interesting! They’re operating within this “trend” that has been all over the news lately — human capital. Every single business, small and large, are doing all they can to hire and retain employees.

The company is already free cash flow positive, having printed north of $200 million between August 2020 and August 2021. They’re growing revenue by +40% and I don’t expect this number to dip below +25% for a few years. A growing percent of their total income is predictable subscription revenue — a good thing.

At their mid-point, the company will hit the market around a $2 billion valuation — which represents only a ~2X multiple on their 2021 revenue. This seems low, sure, but you have to remember their gross profit margins are also only 11%.

Keep your eye on this one. The positive free cash flow at IPO gets me excited, as well as the massive industry tailwinds they’re likely benefiting from right now. If you want to read more, here is their S-1.

Key Earnings Announcements:

Pretty light to start — but this week includes the earnings reports of Delta Air Lines, Taiwan Semiconductor, and several heavy-hitters in the financials sector.

January 10: Tilray (TLRY)

January 11: Albertsons (ACI)

January 12: Infosys (INFY), Jefferies (JEF)

January 13: Delta Air Lines (DAL), Taiwan Semiconductor (TSM)

January 14: BlackRock (BLK), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC)

Will be looking to TSM for some additional color surrounding the ongoing chip shortage. Expect each of these financial companies to be asked about the recently-released FOMC meeting minutes and how they feel banks are positioned for success in 2022.

Remember, higher interest rates = more profits for these banks.

Investor Events:

It may not be as big as the CES Conference (highlighted in yesterday’s Week in Review), but the ICR Conference is another great opportunity to check out the developments of companies that we all know and love.

January 10-12: The 24th Annual ICR Virtual Conference

The 200+ companies in attendance fall into the following categories:

  • Better Living

  • Cannabis

  • Consumer, Retail, & Digital Commerce

  • Global Media, Sports, & Entertainment

  • Professional Services

  • REITs, GameTech, PropTech, Lodging

  • Food Service, Restaurants, & Restaurant Tech

  • Industrial Tech, EV, & Battery

January 10-13: The 40th Annual JPMorgan Healthcare Virtual Conference

Typically in Orlando, Florida — the now virtual ICR Conference is another major event for company exhibitions and networking. Here’s a link to all of the companies that will be presenting. There are expected to be 30+ investment banks covering the action.

The JPMorgan Healthcare Conference is for clients of the firm and by invitation only. However, I’ll do my best to dig up some notable takeaways from the event!

Major Economic Updates:

We had a monstrous week of economic updates to start the year (also highlighted in yesterday’s Week in Review). While this week is less intense — new inflation data, jobless claims, and retail sales are in the queue.

January 12: Consumer Price Index (CPI) from the Bureau of Labor Statistics

January 13: Initial & Continued Jobless Claims from the Department of Labor

January 14: Retail Sales from the Census Bureau

Have a great start to your week! If you find these Week Ahead posts valuable, please consider sharing with a friend!

Disclaimer: This is not financial advice or recommendation for any investment. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.

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