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The IPO Market Slump: Why Big Companies and Investors Aren’t Embracing New Offering
IPO Market Struggles
According to recent reports, IPO activity has been slow this year, with only a handful of tech IPOs completing in the past few months, including Instacart, CrowdStrike, JFrog, and The We Company (formerly known as WeWork). In comparison, there were a total of 57 completed tech IPOs last year, raising over $22 billion in proceeds.
The IPO rut isn’t just limited to tech, as the traditional IPO market has also been relatively quiet in recent months. The largest traditional IPO of the year was for insurance firm Invesco, which raised $3.1 billion in December. This was followed by a $1.45 billion offering from Chinese biotech firm CanSino Biologics in February.
The lack of IPOs is due in part to market volatility, economic uncertainty, and the US-China trade war. However, analysts are also pointing to the fact that many companies are waiting for a more favorable market condition before offering their shares.
Despite the current slowdown in IPOs, experts expect that the market will recover as the economy stabilizes. Investment banks are continuing to take on IPOs for clients, now with more caution. Companies that are able to go public in spite of the volatility can benefit from the current lower market environment.
In the current market environment, IPOs have been going through a rough patch. Investors have been increasingly wary of investing in new companies due to concerns over valuations, uncertainty, and the impact of the pandemic on the economy. The most recent example of this is Birkenstock’s poor performance on its first day of trading.
The IPO market has been particularly weak in the e-commerce and technology sectors, with companies such as Lyft and Uber faring poorly during their debuts. This has led many startups to delay their IPO plans, with companies such as Instacart recently postponing their listing on the NASDAQ.
Given the current market conditions, potential investors should approach any potential IPO with caution. Companies should look to adequately assess their own risks and provide adequate disclosures before
launching a public offering. Investors should also be cognizant of the current market conditions and the potential for further disruptions when choosing to invest in any IPO.
The latest string of lackluster IPOs has become more than just a worry for investors. Companies across the U.S. are going public with diminished enthusiasm, with few investors showing interest in investing in the latest names in the market.
The disappointing IPOs come not long after the highly anticipated debuts of companies such as DoorDash, Airbnb and Instacart. Nonetheless, the stocks for all three companies have dropped in the weeks since their respective IPOs, with investors unwilling to pay increasingly higher prices for the companies.
This lack of enthusiasm could be attributed to a plethora of factors, including the current economic state of the country, concerns about the trajectory of the stock market, high valuations of tech startups, and a general pessimism among investors about the sustainability of these companies.
Moreover, investors cite fears that these companies may be unable to deliver on the scale of growth that they have promised. For example, Instacart, which was initially intended to revolutionize the grocery delivery market, has been unable to deliver on promised growth since its IPO, while DoorDash has faced criticism for its recurring customer acquisition costs.
In a sense, the situation is indicative of a larger trend of investors being more wary of investing in tech companies. This could be seen as a natural consequence of the exuberant IPO market that characterized the first half of 2020, which saw a large number of high-profile tech companies going public.
As a result of these recent events, it appears as though the IPO market may be in need of a shakeup. Companies may need to lower their valuations and consider alternate strategies to bring their businesses public in order to draw investors back in. Regardless of the outcome, the IPO market will need to be watched with close attention over the coming months.
The information provided in this article is for informational purposes only and should not be considered as investment advice. The stock market can be volatile, and investing in stocks carries risks. Always do your own research and consider consulting with a financial advisor before making any investment decisions.