IPO Pops Are Packing A Lot Less Punch

Image Credit: iStock Images, Andrey Krav.

Sign up for smart news, insights, and analysis on the biggest financial stories of the day.

Earlier this year it was almost a given that companies going public were in for a big share price “pop” on their first day of trading. Now, a “snap” or “crackle” is a real possibility.

New figures released Tuesday show investors are pumping the breaks on investments in U.S. initial public offerings, turning some high-profile debuts into flops.

Winner’s Quarter

During a piping hot first quarter of generally bullish markets, an IPO stock listing on U.S. exchanges was close to what Vegas would call “a sure thing”:

  • Companies listed on the New York Stock Exchange or Nasdaq in January and February rose an average of 40% from their IPO price on day one of trading, according to Dealogic.
  • But through March and April, that average first-day pop fell to 20%. Last month, it dipped to 18%.

“It’s just not the ‘everybody’s a winner’ market that it was in the first quarter,” said Rachel Phillips, a capital markets lawyer at Ropes & Gray’s. And shaky market conditions, like increasingly choppy equity trading, have led firms to adjust their playbooks:

  • Some are getting gun-shy on pricing: since the start of the second quarter, 13% of companies going public via IPO priced below expectations, the highest since the start of the pandemic. While 25% priced above expectations in the first quarter, only 11% are doing so now.
  • Others pressed pause on their plans: Genworth Financial, scheduled to spin off its mortgage insurance business Enact last month, postponed the IPO after inflation concerns dragged down shares in the sector by 10%.

Debut Duds: While most companies are still rising on their debut, several big IPOs in the last few weeks have been full-on flops. Chinese insurance tech group Waterdrop fell 19% on its first trading day. Vaccitech, a biotech firm that owns the technology that created the Oxford/AstraZeneca coronavirus vaccine, dropped 17% on its first day.

Krispy Lining: At least one big name remains hungry to hit public markets. Donut maker Krispy Kreme announced Tuesday that, five years after it went private, it’s planning an IPO. The ticker symbol: DNUT.