The U.S. market has recorded a major dearth of startups following the dotcom crash of two decades ago. The IPO drought has been undermining the notion of shareholder democracy because ordinary investors are increasingly unable to own shares of companies in the most successful or the fastest-growing sectors.
If you think this is an exaggeration, consider that the number of public companies in the country has seen a dramatic decline from 7,300 during the height of the dot-com boom to around 3,600 in 2016 according to Credit Suisse.
This unfortunate trend can be chalked up to less startups opting to go public; young companies staying private for much longer and more public companies reverting to private life.
But, thankfully, the tide appears to be turning for the better.
After a huge slump that lasted several decades, the IPO market appears to be back with a bang. Despite the formidable obstacles posed by the COVID-19 pandemic, the year 2020 proved to be a major turning point for the IPO market. Last year, 471 U.S. companies (including SPACs) went public, representing a level last seen in 1999 at the height of the Dotcom boom.
With markets awash with liquidity, the first quarter of the current quarter has set the pace for yet another record year for IPOs in the U.S. and globally.
By the end of March, trailing 12-month proceeds for IPOs in the United States were nearly $64 billion, the highest level since the dotcom boom.
Another encouraging trend: The average first-day return, commonly called an “IPO Pop,” more than doubled over the longer-run average to 38%.That means first-day returns were much stronger than the average IPO pop from 1980 through 2020 at 18.4%, though not quite as large as the Dot-Com bubble, where IPOs averaged over a 60% increase on the first trading day.
But nobody guaranteed that all of these listings would become blockbusters.
The current year has recorded its fair share of public listings that have performed well below expectations due to a myriad of factors. Here are some of the more notable ones.
Chinese ride-hailing giant Didi Global Inc. (NYSE:DIDI) went public last month, raising $4.4 billion through its IPO in one of this year's most anticipated IPOs.
But things quickly went to the dogs from there after Chinese regulators cracked down on Didi for alleged data security violations. Chinese consumers have grown increasingly privacy conscious in recent years, and Beijing has been taking steps to safeguard platforms like Didi’s that handle sensitive information such as locations.
Chinese authorities’ speedy action on Didi just days after its IPO has served to remind international investors about the regulatory curveballs that can sometimes come hurtling their way and sent DIDI shares crashing more than 50% since its June IPO.
London-based Deliveroo (OTCPK:DROOF) takes the cake for this year’s IPO disasters due to the sheer weight of expectations.
A food delivery startup, Deliveroo quickly became a darling of the stock markets thanks to Amazon Inc. (NASDAQ:AMZN) buying a 16% stake in the company in a major vote of confidence.
Yet, London's biggest IPO since 2011 quickly turned into an unmitigated disaster with Deliveroo stock plunging 26% below its listing price and wiping almost £2 billion ($2.8 billion) off the company’s initial market capitalization in its first trading day.
In fact, the opening day performance led to one of Deliveroo’s bankers telling the Financial Times that it was "the worst IPO in London's history."
A host of factors have been blamed for the flop including pricing, timing, uncertain business prospects, risks facing gig economy companies as well as concerns over how the company treats workers.
Thankfully, Deliveroo has been able to recover from the initial disaster with the shares currently trading at £4.45, ~14% above their £3.90 initial pricing.
According to London-based CryptoCompare, Coinbase Inc. (NASDAQ:COIN) is the second-largest cryptocurrency exchange by spot trading volume after Binance.
On April 14, 2021, Coinbase went public in a direct listing that easily became one of the biggest on record after Coinbase was valued at $100B.
But, alas, that was as good as it got for Coinbase and its shareholders. COIN shares whipsawed the following day and finally crashed after Beijing started cracking down on the space, curbing bitcoin mining due to concerns of excess speculation and warning financial institutions against offering crypto services.
Things quickly went to the dogs after the Department of Justice seized $2.3 million in bitcoin in early June as part of its investigation into a ransomware attack that shut down the Colonial Pipeline’s gas pipeline, the nation’s largest gas pipeline. The DoJ seizure helped fuel concerns that U.S. officials could ramp up their crypto oversight and threw a monkey wrench into one of bitcoin’s supposed forté--non-traceability.
COIN has lately received a shot in the arm after Goldman Sachs slapped a ‘Buy’ rating on the saying that heightened volatility in the markets could provide a nice boost to the exchange’s earnings. That makes some sense because the company’s business model revolves around the fees it charges for trading cryptocurrencies, and makes most of its money via fees it charges on trades, maker and taker fees, and interchange fees. Still, the shares are down nearly 30% from their IPO price.
In recent years, special purpose acquisition companies (SPAC) or "blank check companies’’ have become hot property. SPACs have been serving as an alternative to the traditional IPO process for decades, but SPAC IPOs have exploded this year: There have been 217 SPAC IPOs year-to-date, with gross proceeds exceeding $74B compared to just 59 SPAC IPOs in 2019 representing $13.6B in gross proceeds. In fact, SPACs have become so popular that late last year, the SPAC and New Issue ETF (NYSE:SPCX), the first actively managed fund dedicated to the asset class, was launched.
It’s, therefore, hardly surprising that companies looking to capitalize on the SPAC trend have trained their sights on the energy sector.
ChargePoint is an electric vehicle infrastructure company based in Campbell, California. The company currently owns 114,000 EV charging stations across 14 countries including the United States, making it the largest player in the market with a 44% market share. The company has realized incredible growth clips, having nearly tripled its total locations since June 2017 (35,900) with a projected 2.4 million locations by 2025.
Meanwhile, Switchback Energy went on a tear after announcing its intention to combine with Chargepoint. Granted, much of the craze was powered by investors betting on the SPAC craze and the shares could have entered bubble territory..
Unfortunately, the new combined company known as ChargePoint Holdings Inc. (NYSE:CHPT) has seen its shares tank 20% since the merger.
Austin, Texas-based Bumble Inc. (NASDAQ:BMBL) provides online dating and social networking platforms in North America, Europe, internationally. Bumble’s February IPO made history after it made founder and CEO Whitney Wolfe Herd into a billionaire and the youngest woman to take a company public.
Bumble raised $2.15 billion through its IPO and its stock soared 64% above its IPO price on its first day of trading. But the novelty wore off pretty quickly from there and BMBL stock has lost a third of its value since.
However, the dating app has been slowly clawing its way back, with the latest move coming after RBC Capital Markets lauded its 'quality over quantity' approach.