2023-09-04 16:44:52
Whether a company’s IPO is a success or not depends on many factors. The general market environment as well as the basic buying mood and liquidity of potential investors play a not insignificant role, even if individual aspects are likely to have a particularly strong impact on one’s own stock market history.
Concerns that interest rates will continue to rise on both sides of the Atlantic are currently weighing on investor sentiment. The economic outlook could also be better. Nevertheless, stock indices such as the Dax or the American S&P 500 have gained around 14 percent and 18 percent respectively this year. The high inflation is at least easing somewhat. For Germany, the Federal Statistical Office put the inflation rate at an estimated 6.1 percent in August, after 6.2 percent in July.
Industry news or the situation of the competition of the potential newcomer are also indirectly important. Above all, however, it depends on the IPO itself, the quality and sustainability of its business model, sales and results or the framework data of the IPO itself such as the number of shares, the level of the issue price or the choice of stock exchange.
The American stock market in particular seems attractive at the moment, as some candidates are currently pushing for it, such as the British chip specialist ARM or the American food delivery service Instacart. According to the will of the American financial investor L Catterton, the shoe manufacturer Birkenstock is also to be listed on Wall Street.
Sebastian Dörr, capital market analyst at asset manager HQ Trust, looked at how successful IPOs have been in the United States over the long term and compared the performance of the S&P 500 with that of the FTSE Renaissance US IPO Index. Dörr says that companies that have recently been listed on the stock exchange and had a market capitalization of at least $100 million at the time of the IPO would be included in this index once a quarter. However, the calculation of possible subscription profits is not possible with this index. Three years after the first day of trading, the shares fell out of the index again. This currently includes almost 300 values, including Airbnb, Snowflake and Palantir Technologies.
The results: In the long run, it would not have paid off for investors to bet on the newcomers. Because since 2012, these have lagged behind the broad market on average, with higher price fluctuations (“volatility”). While the S&P 500 has averaged around 15.3 percent per year over the past 12 years, the FTSE Renaissance US IPO Index has only managed 11.8 percent.
However, the relative performance was quite different. From 2012 to 2019, for example, the newcomers developed more or less like the market. In 2020, on the other hand, the IPO Index far outperformed the S&P 500. Thanks in part to the jumps in prices from Peloton and Zoom Video, this has more than doubled. However, the newcomer barometer completely gave up this above-average performance in 2021 and 2022. Peloton is now trading at $6.55, well below the issue price of $29 (2019) – a drop of 77 percent.
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Dörr possibly attributes the below-average performance of the newcomers to the fact that they often only appear on the stock exchange with a smaller proportion of the shares. Later, however, the previous owners often gave up further share certificates, which could dampen the price development. Despite all this data: A single new issue can of course still be promising – the differences are large. For example, while Facebook’s stock roughly doubled in the three years after the IPO, Uber’s value has fallen by more than 40 percent in these 36 months.
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