The companies that have come public over the last year are suffering so badly in comparison to the broader market, that they are scaring other companies away from an IPO. Corrie Driebusch reports for The Wall Street Journal:
Recently public companies are among the worst performers in this year’s stock-market rout, contributing to a deep freeze in the IPO market that shows few signs of thawing.
Roughly 87% of companies that went public in the U.S. last year are trading below their offering prices, down more than 49% on average as of Friday’s close, according to Dealogic. By rough comparison, the S&P 500 is down 23% this year, while the tech-heavy Nasdaq Composite has fallen 31%.
Shares of insurer Oscar Health Inc. OSCR -3.05%▼ and clothing-rental company Rent the Runway Inc. RENT -2.05%▼ are down more than 85% from their respective initial-public-offering prices. Payments-processing company Marqeta Inc. MQ -2.15%▼ and stock-trading platform Robinhood Markets Inc. HOOD -1.32%▼ are down more than 70%, while restaurant-software provider Toast Inc. TOST -1.84%▼ and online-education provider Coursera Inc. COUR 0.59%▲ have fallen by more than half.
That is scaring off fund managers, who tend to shy away from new issues if recent ones they have bought are performing badly. They are unlikely to return to the market before the shares stage a significant comeback, some bankers say, which could keep IPO activity in the doldrums for the balance of the year and beyond.
“Investors expect IPOs to perform well, and usually that works,” said Mark Schwartz, head of IPO and SPAC Capital Markets Advisory at Ernst & Young. “The most recent class has severely underperformed, and that’s one of the reasons we’re seeing so little activity.”
The IPO market is having its slowest year in more than a decade, with just $7.2 billion raised in traditional new stock offerings in the U.S., as a volatile stock market, escalating fears of a recession and other factors take their toll.
It is a far cry from last year, when traditional offerings, which don’t include special-purpose acquisition companies, raised $154 billion in the busiest year for IPOs on record. Until the final months of 2021, the majority of IPOs that year were trading above their offer prices, but by year-end, two-thirds traded below.
For the batch of traditional IPOs in the U.S. this year, the performance is also disappointing, with roughly 85% trading below offer price, according to Dealogic. Corebridge Financial Inc. CRBG 0.40%▲ recently staged the biggest new listing of the year, but the life-insurance and asset-management unit of American International Group Inc. did little to spark a rebound in the beleaguered IPO market; at $21 a share, the offering was priced at the low end of expectations and as of Friday traded below that.
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