What's going on?
Data out over the weekend showed that half the companies involved in 2021’s biggest initial public offerings (IPOs) are now trading below their listing prices, so is this a curse or…?
What does this mean?
The world’s most up-and-coming companies have raised a record amount of cash through IPOs this year, but some of them might’ve peaked too early: new data showed that 49% of stocks involved in IPOs that raised more than $1 billion across London, Hong Kong, India, and New York are now worth less than they were when they listed (tweet this). Take payments giant Paytm, whose shares plummeted nearly 40% in its first two days of trading earlier this month – one of India’s biggest IPO flops ever. And spare a thought for Deliveroo: the British food delivery giant saw its shares fall more than 25% after its much-hyped stock market debut back in March.
Why should I care?
The bigger picture: Not to point the finger, but…
There could be a couple of reasons these companies’ share prices have collapsed. For one thing, investment banks – which decide the listing price in the first place – might’ve overegged their valuations, meaning investors are more likely to dump the stocks once reality bites. And for another, plenty of the newcomers’ “lock-up periods” – which force pre-IPO investors and employees to hold onto their shares for a certain length of time after listing – have since expired. That’s allowed those shareholders to sell up, pocket their gains, and, in turn, flood the market with more shares.
Zooming out: Someone’s happy.
The IPO boom has certainly continued to pan out well for investment banks, which make big fees from every debut they work on. And since they pass that cash onto their investors in the form of dividends and share buybacks, all these listings could partly be why an index tracking US bank stocks is up 35% this year, compared to the wider market’s 24%.