By Jonathan Ponciano,
A“unicorn phenomenon” that’s ushered in massive fundraising rounds for startups over the past decade is “finally blowing up” and manifesting itself in a record wave of IPO activity, says Pitchbook venture analyst Cameron Stanfill. Thanks in part to the trillions of venture capital dollars spent on startups over the past decade, he says the trend of buzzy billion-dollar firms nabbing sky-high public market valuations isn’t likely to cool down in 2022.
A record 2,388 firms raised $453 billion while going public in 2021—the highest annual deal volume ever, according to Ernst & Young. In the U.S., deal volume also broke records, with nearly 1,100 companies going public and raising close to $260 billion. Cryptocurrency exchange Coinbase, online brokerage Robinhood and Tesla rival Rivian were among firms captivating investors and fueling a record-smashing wave of initial public offerings and direct listings.
Now, private equity giant TPG, food delivery service Instacart and meme-stock purveyor Reddit are among firms preparing for 2022 public debuts. Stanfill expects the number of deals could possibly hit a new high in 2022, but he’s not so sure about an increase in deal value. “That’s harder to predict,” he explains, citing the uncertainty around “outlier-style” megadeals, like those pulled off by Coinbase and Gen-Z gaming platform Roblox, which opted for a direct listing in March after delaying a trading debut in 2020 amid concerns of exuberant post-IPO price spikes. If it finally goes public, payments giant Stripe—the country’s most valuable startup, worth nearly $100 billion—could help mint a new IPO record.
As for performance? “IPOs can be as enticing as a lottery ticket,” says Ally Invest Chief Markets Strategist, Lindsey Bell, “but it’s difficult to tell which will be booms or busts.” Despite the “excitement and hype” around many public listings, Bell warns new stocks often pose a higher risk than those with longer tenure. Coinbase, for example, spiked as much as 75% on the firm’s first day of trading in April, shortly after retail trading’s unprecedented surge in the first quarter. However, shares have since crashed more than 45% and hit new record lows, as the retail fervor—and bubbly crypto prices—cooled off.
Despite the explosion of firms going public, half of the companies that listed on U.S. exchanges between 2015 and 2019 were trading below their IPO prices one year later, notes Ally Invest’s Lindsey Bell.
The Renaissance IPO ETF, which has some $700 million in assets and touts ownership of the “largest, most liquid, newly listed” U.S. IPOs, skyrocketed 107% in 2020 but plummeted about 9.5% in 2021. Compare that with gains of 27% and 23% for the S&P 500 and tech-heavy Nasdaq, respectively. “This isn’t a new trend,” says Bell of the poor post-IPO performance, noting half of U.S. companies that went public between 2015 and 2019 were trading below their IPO prices one year later.
Meanwhile, stock market volatility jumped to an 11-month high in December after the Federal Reserve announced plans to hike interest rates three times this year and completely phase out its pandemic-era bond purchases by March in response to decades-high inflation, pulling the S&P down nearly 4% from a record close just days earlier. Higher interest rates, which tend to hurt public company earnings and stock prices, are “top of mind,” says Stanfill, expecting more volatility that could ultimately delay some IPO plans or even discourage others altogether in the shorter term.
Despite the growing risks, there are still a large number of special-purpose acquisition companies actively searching for deals and likely to provide a big IPO tailwind, Stanfill notes. About 575 SPACs are currently sitting on roughly $155 billion raised for private companies eager to list on a U.S. exchange—already rivaling the record 606 SPACs that took companies public last year. (Forbes Media announced in August it would go public via a SPAC this year.) Though the Securities and Exchange Commission is teasing harsher disclosure requirements for these time-saving, go-public vehicles, the sheer volume of available funds—and the potential for SPAC sponsor returns—are likely enough to bolster the IPO market despite lingering uncertainty, especially since most companies have no more than two years to strike a deal or return cash.
The IPO market is bracing for yet another massive year, but it’s unclear whether it will result in a boom or bust. Here are the companies to watch ahead of their 2022 IPOs.
8. Trumph Media