Daily Brief - Half of 2021 IPOs are underwater

Stock markets have been ebullient in 2021 (if not in the last 3 days). Yet a large portion of new IPOs are underwater i.e. trading below initial list price.

By comparison, 2019 and 2020 had ~30% of IPOs trade lower by the last quarter.

During a year that posted very strong equity gains, the weak performance of these IPOs has shone a spotlight on the valuation issue.

Public listings were seen as the “way out” for investors who had previously funded private rounds at exorbitant valuations for companies which were often lossmaking.

Which naturally raises the question, ‘are these falling IPOs a signal of a turn in the market’?

In short, no.

For one counterpoint, look at this headline from Crunchbase from Oct 2018:

Over 80% Of 2018 IPOs Are Unprofitable, Setting New Record

Seems the market has done quite well since then?

The point is, we already know we’re in a historical bubble - but timing bubbles is hard.

At its core the bull market is driven by Central Banks’ liquidity, so one can look at the Fed and hope for at least a graceful exit.

Or one can simply do like the r/wallstreetbets crowd, who came of age in the bull market and only know one way to invest in a dip: buy it.

We published this image on October 6th, the last time a dip promised apocalypse save rallying 7% in the next month

For more on the topic, please head to the FT for this piece by Hudson Lockett and Tabby Kinder in Hong Kong and Stephen Morris in London.