Record US IPO Surge Set to Roll On In 2021
Defying expectations, investors piled into initial public offerings at a record rate in 2020, and few expect the euphoria to wear off soon.
Companies raised $167.2 billion through 454 offerings on U.S. exchanges this year through Dec. 24, compared with the previous full-year record of $107.9 billion at the height of the dot-com boom in 1999, according to Dealogic.
The coronavirus pandemic turned the typical rhythm of the IPO market on its head, with $67.3 billion raised in the fourth quarter. That amount is roughly six times the total for the first three months of the year.
As a result of the scramble, stalwarts of the 21st-century economy including [Airbnb](https://www.wsj.com/market-data/quotes/ABNB) Inc., [DoorDash](https://www.wsj.com/market-data/quotes/DASH) Inc. and [Palantir Technologies](https://www.wsj.com/market-data/quotes/PLTR) Inc. are now publicly traded, accessible to the average investor.
When the pandemic began shutting down swaths of the U.S. economy in March and the [stock market swooned](https://www.wsj.com/articles/stocks-dow-slide-after-fed-slashes-rates-11584310328?mod=article_inline), veteran IPO watchers braced for another disappointing year after activity in 2019 [fell short of expectations](https://www.wsj.com/articles/2019-the-year-of-ipo-disappointment-11577615400?mod=article_inline).
Following a brief pause, new-issue activity resumed in late May after the Federal Reserve signaled [it would take extraordinary measures](https://www.wsj.com/articles/federal-reserve-announces-major-expansion-of-market-supports-11584964844?mod=article_inline) to shore up the economy, and the stock market rebounded from a steep decline.
Several stocks that made their debuts around then soared, setting the stage for a race to the public markets that after a brief holiday pause is expected to pick up again in the new year.
The IPO market [got a boost from a surprising surge](https://www.wsj.com/articles/investors-flock-to-spacs-where-risks-lurk-and-track-records-are-poor-11605263402?mod=article_inline) in special-purpose acquisition companies, or SPACs, empty vehicles that raise money through listings and then look for businesses to merge with. They represent a bet that a yet-unknown business will generate steep returns and typify the risk appetite that is fueling new issues and markets more broadly.
Nearly half of all fundraising in the IPO market was for SPACs, and the total raised through SPACs this year is almost six times as much as the vehicles raised in 2019, the previous record-setting year.
The IPO frenzy reached its height in the second week of December, typically a quiet time for new offerings as year-end approaches, when Airbnb and DoorDash both more than doubled in their first day of trading. That gave the two companies, which have yet to produce consistent profits, valuations stretching well into the tens of billions of dollars.
Those [gains raised eyebrows among some](https://www.wsj.com/articles/sizzling-tech-ipo-market-leaves-investors-befuddled-11607868001?mod=article_inline) who worry the IPO market is overheating, and draw parallels with the period before the internet bubble burst in early 2000. They point to a surge in interest among individual investors, many of whom use a popular brokerage app run by Robinhood Financial LLC. If history is any guide, they say, such investors are liable to run for the exits as soon as markets reverse course.
Colin Stewart, [Morgan Stanley](https://www.wsj.com/market-data/quotes/MS)’s global head of technology equity capital markets, said investors have “limitless interest” in certain stocks, particularly those that have captured the imagination of individual investors. “The moves and valuations of certain stocks are not necessarily based on business fundamentals,” he said.
Such concerns were evident when two companies that had planned to debut in the wake of Airbnb and DoorDash—Roblox Corp. and point-of-sale lender Affirm Holdings Inc.—decided [to delay their listings](https://www.wsj.com/articles/affirm-postpones-initial-public-offering-sources-say-11607801619?mod=article_inline). Roblox officials in particular were concerned about leaving money on the table should the videogame platform also have a big first-day pop, according to people familiar with the matter.
This year’s technology IPOs—the backbone of the new-issue market—have posted the biggest gains on their first day of trading since 2000, at 34% on average compared with 65% then, according to Dealogic. (Overall, IPOs have jumped roughly 18% on their first day of trading; excluding SPACs, the average first-day return of operating companies is about 36%.) On average, 2020 IPOs have risen roughly 48% from their original prices.
The extreme interest in some IPOs, while others languish, has made it especially tricky for underwriters to find the right price for stocks to debut at.
Whatever the method, startups’ interest in going public shows no signs of abating. John Chirico, co-head of North American banking, capital markets and advisory at [Citigroup](https://www.wsj.com/market-data/quotes/C) Inc., said companies “see the benefit and value of being public like they never have before.”
_(Source: Wall Street Journal)_