Nasdaq Soars 32%... But Dark Shadows Loom Over the IPO Market

Although the U.S. New York stock market has continued its rally this year, the frozen initial public offering (IPO) market remains sluggish. Many companies that had planned to go public this year are still grappling with the uncertain economic environment. Despite recent successes such as the strong performance of the Kava Group, analysts say it is difficult to expect a full-fledged rebound within the year.

[Image source=Reuters Yonhap News]

The Wall Street Journal (WSJ) reported on the 2nd (local time) about the IPO atmosphere of three companies last week?Savers Value Village, Fidelis Insurance Holdings, and Kodiak Gas Services?stating that the IPO market is still in a recovery phase.

Savers, a used goods store operator, saw its stock price jump 27% on its first day of trading on the 29th of last month, far exceeding its offering price. However, reinsurance company Fidelis and Kodiak Gas showed poor performance on the same day. Both companies fell well short of their IPO targets and experienced declines from the first day of trading.

This contrasts sharply with the Kava Group, a Mediterranean restaurant chain, which surged about 100% on its first trading day just two weeks earlier, raising hopes for a revitalized IPO market. Douglas Adams, Global Co-Head of Equity Capital Markets at Citigroup, said, "The IPO market is not fully open yet. It is in 'rebuilding mode,'" adding, "This recovery phase generally does not proceed in a straight line (there are ups and downs)." WSJ reported, "Last week's trading failed to inject vitality into the sluggish IPO market," and that "the market is still in a recovery phase."

Recently, optimistic signals have been observed in the IPO market. The Nasdaq index, which is typically considered an IPO indicator and is tech-stock focused, has risen about 32% so far this year. Market volatility has also decreased. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's 'fear gauge,' has remained well below its long-term average of 20 since the end of March. Moreover, the successful listing of the Kava Group last month reminded many investors of the boom periods in 2020 and 2021.

Buoyed by this atmosphere, other IPO candidates are waiting in line. Audity is expected to go public as early as July. ARM aims for a mega debut in September. Grocery delivery company Instacart and marketing automation platform Klaviyo are also likely to pursue IPOs soon. Chinese fast-fashion company Shein has submitted registration documents to the U.S. Securities and Exchange Commission (SEC) for a New York Stock Exchange listing, and recent foreign media reports suggest a possible IPO by the end of this year.

However, the outlook remains bleak. The uncertainty surrounding a recession is significant due to persistent inflation and interest rate hikes. Particularly, the rally in the New York stock market this year has been limited to a few big tech stocks like Nvidia and Apple, which has caused anxiety among both investors and companies preparing to go public.

Excluding special purpose acquisition companies (SPACs), the scale of U.S. IPOs reached $9 billion as of the 30th of last month. While this amount is higher than last year, WSJ pointed out that it remains minimal compared to $87 billion and $24 billion at the same points in 2021 and 2020, respectively.

Especially, the performance of companies that have gone public in recent years has not been good. According to Dealogic, the stock prices of companies that went public in 2020 fell an average of 34% below their listing prices. For IPO companies in 2021 and 2022, stock prices dropped 46% and 49%, respectively. Companies planning IPOs have no choice but to carefully consider timing amid such uncertainty.

WSJ stated, "Despite the rise in major New York stock indices, the stock prices of recently listed companies remain poor, casting a shadow over the IPO market," and "Despite a few recent successes, experts predict the IPO market will remain sluggish for the next few months." The ongoing layoffs at investment banks such as JPMorgan, Citi, and Goldman Sachs are also not unrelated to this atmosphere. David DiPietro, head of private equity at T. Rowe Price, said, "There is plenty of capital and many companies ready to go public, but there is only one chance to do it right."

Earlier, Bloomberg also reported through its own tally that the global scale of mergers and acquisitions (M&A) and IPOs in the first half of this year decreased by about $1 trillion compared to the same period last year. Fundraising through IPOs in the first half amounted to $68 billion, which is more than a third lower than the previous year. It also falls far short of the $500 billion IPO scale in 2021. Thorsten Pauly of Bank of America (BoA) said, "For the IPO market to restart, 10 to 15 deals need to be successfully completed."

This content was produced with the assistance of AI translation services.