IPO activity may be set for 2024 revival
- January 1, 2024: Vol. 11, Number 1

IPO activity may be set for 2024 revival

by McAlinden Research Partners

The ecommerce fashion startup Shein filed to go public in November, fueling speculation the IPO market is set to heat up in early 2024, coinciding with an expected end to monetary tightening at the Federal Reserve.

Some reporting indicates social media giant Reddit is again considering a long-anticipated public listing in first quarter 2024 and is holding talks with potential investors. Per TechCrunch, Reddit had previously tapped Morgan Stanley and Goldman Sachs to work on a potential listing in early 2022. At the time, it was considering a valuation of as much as $15 billion, but those plans were likely derailed by increasing recession concerns and the anticipation the Fed would soon raise rates and enter a phase of quantitative tightening, putting the squeeze on equity markets. Suffice to say, that intuition was correct.

Inc. reports more than 140 companies went public in the United States during 2023, down about –18 percent from the more than 170 firms the previous year. 2022’s final tally of 181 U.S. IPOs was the smallest number of annual listings in six years. It appears unlikely the combined number of 2022 and 2023 IPOs will approach even one-third the record 1,035 public listings that occurred in 2021 alone. That year, defined by near-zero interest rates, a massive increase in the money supply, and all-time highs in key equity indices such as the S&P 500, was prime time for companies to quickly capitalize on a tidal wave of liquidity in the United States and beyond. Bloomberg reported that more than $24 billion was raised on U.S. exchanges via IPOs in 2023, a modest bump from 2022, but still a –92.0 percent plunge from 2021.

According to Stock Analysis data, the average return on 2021’s sizable pile of IPOs to date is –18.0 percent and roughly 35.1 percent of those companies have seen their share prices decline by at least –50 percent from their initial public offering. A narrower analysis of these companies from Crunchbase News, focusing only on 2021 IPOs that were valued at $10 billion or greater, shows the combined valuation of these 26 firms had fallen by more than –60.0 percent through mid-October 2023.

Though a spike in IPO filings is likely in 2024, it begs the question of whether rising public listings is a positive sign for equities. Just as the number of IPOs peaked in 2021, so did the S&P 500. A similar pattern was also witnessed in 2000 when 397 companies listed, the most in any year until 2020. That was followed by the dot-com crash of 2001, sending stocks spiraling into bear market territory. It is highly unlikely the 2024 slate of IPOs approaches anything close to the boom of 2021, but it should be noted that increased listing activity can sometimes be a better gauge of short-term exuberance than an indicator of well-supported fundamentals in equity markets.

One way investors can gain exposure to newly listed firms is via The Renaissance IPO ETF, which seeks to provide investors with the largest, most liquid U.S.-listed newly public company stocks, rebalancing each quarter as new IPOs are included and older constituents cycle out three years after their IPO.


This article was excerpted from a report written by McAlinden Research Partners, which can be accessed here.

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