What to Expect From the IPO Market

As we are approaching the second half of 2021, let’s take a look at what we can expect from the IPO market for the rest of the year. 

Last week, there was some slowdown when it came to public debuts. There were only two IPOs and one direct listing. Those IPOs came from Procore Technologies (NYSE: PCOR) and Oatly (NASDAQ: OTLY), and the direct listing came from Squarespace (NYSE: SQSP). There were a few more IPOs scheduled for last week, but as the week progressed some inflation fears brought on stock sell-off, which resulted in some market volatility. This volatility led these companies expecting to go public last week to cancel their plans altogether. 

IPO research firm Renaissance Capital has reduced its expectations for the rest of the year when it comes to IPOs. Matt Kennedy, a senior strategist at Renaissance, said, “We’re beginning to see activity slow as aftermarket returns decline.” The firm also added that more than half of 2021’s IPOs — excluding SPACs — are now trading below their offering prices. 

It appears that the U.S. big comeback from the coronavirus pandemic has had a bit of a detrimental effect on the IPO market and retail investors. While it is very exciting that more people are getting vaccinated, returning to society, and doing activities and spending money like they were pre-pandemic, there’s a chance that less money will be going back into the stock market or into people’s savings because the public won’t be receiving any more government stimulus payments. A lot of people were putting those stimulus payments toward things that they normally wouldn’t have spent their typical salary income on.

Extra income is always nice, of course, but obviously, it wasn’t something that was expected to continue. Maybe this means that people will go back to taking less risk with their money and they’ll only be spending on (and investing in) things they feel confident they will benefit from. This is why we might have seen those companies hold off on their public debuts: because they might have been planning to go public while the atmosphere in the IPO market was robust — and at a time when investors weren’t so hesitant to invest and were willing to take a little more risk.

Matt Kennedy had this to say:

We’re still tracking a number of deals that I think are preparing for 2021 listings, just keeping in mind that at least over the next month, companies will need to either delay or come at attractive valuations to investors interested, given the new market dynamic here.

Most recently, Marqeta, a card issuing platform that gives businesses tools to assist with building and managing payment programs, and Monday.com, the project management company whose platform helps improve team communication and productivity within a business, have filed their IPO paperwork with the SEC. Popular retailer and the original glazed doughnut creator, Krispy Kreme, filed confidentially for its IPO. 

We are still going to expect and see companies go public throughout the rest of 2021. We just probably won’t see the trends that we saw in 2020. There were 480 IPOs in 2020, and as of right now, in 2021 there have been 483 IPOs. These figures include SPACs. So while, yes, 2021 has surpassed 2020 in volume, I think in this second half we could witness a significant slowdown. 

Kennedy also mentioned:

We could see more SPACs continue to poach IPOs, but just like with the IPO market, that environment is more challenging and they should see tougher valuation pushback from shareholders, who are less likely to approve any deal now regardless of fundamentals.

We are seeing the environment for IPOs change and shift in the second half of 2021. While there were some really strong and compelling IPOs throughout 2020, there were also some that just went public to ride the wave of IPOs in an attempt to reap the rewards from an ambitious market. 

Now it appears investors are more interested in companies that indicate that their valuation matches their financials and that aren’t inflated or based on the “story” behind the company. Investors want to see tangible results and want to know that they’re investing in a company that has something to offer them down the road, which isn’t a terrible thing to hold out for. Since companies are seeing this trend, they have to focus on their financials and how to build them up and appeal to potential investors before they consider going public.

And that’s why we might start seeing a slowdown of companies going public throughout the rest of the year and maybe even into the next.

But that’s not necessarily a bad thing. Maybe now potential investors can focus on the companies planning their market debuts because the amount of IPOs in a week will be reduced. They can focus more on whether those potential IPOs not only have what it takes to have a successful public debut, but also have enough long-term potential to remain a strong investment in an investor’s diversified portfolio.

Until next time,

Monica Savaglia

Monica Savaglia is Wealth Daily’s IPO specialist. With passion and knowledge, she wants to open up the world of IPOs and their long-term potential to everyday investors. She does this through her newsletter IPO Authority, a one-stop resource for everything IPO. She also contributes regularly to the Wealth Daily e-letter. To learn more about Monica, click here.