The 2017 IPO market delivered 160 deals, 50% more IPOs than in 2016. Proceeds for issuers nearly doubled, to $36 billion. And yet, many still consider it a down year. It’s easy to see why: A roaring equities market and historically low volatility should have, in theory, led to a rush of new issues and stellar after-market performance.
Instead, 2017 will be remembered more as a mixed bag. Some biotech and technology firms, for example, produced spectacular returns, including AnaptysBio and Roku. But they were offset by “a large number of conspicuous underperformers,” says IPO ETF provider Renaissance Capital in its 2017 annual review.
In particular, the disappointing debuts of Snap and Blue Apron cast a pall over other tech companies that were on the verge of going public. (The subpar performance of Altice USA, the U.S. market’s second-largest IPO of 2017, didn’t help either.)
Last March, Snap’s long-awaited IPO raised $3.4 billion, the most for a U.S. tech company since Facebook in 2012, points out Renaissance Capital. But after gaining 44% on day one, the highest “pop” for a $2 billion-plus IPO since 2000, Snap’s shares skidded to below $15 per share. Blue Apron’s fate was even worse, as operational challenges after the company’s June IPO and disappointing financial reports sunk its shares by more than 50% from the company’s offer price.
For the most part, these IPO duds had fundamental, company-specific issues, like precarious business models and expensive valuations. But their prominent flameouts led to investor and issuer uncertainty, which doesn’t make for a robust IPO market.
So what to expect for 2018?
The pipeline looks light. There are 61 IPOs publicly on file looking to raise a combined $20 billion, down from 69 at year-end 2016 and 118 the year before that, says Renaissance Capital. But part of that is because most companies now take advantage of confidential review by the Securities and Exchange Commission, “reducing [the] visibility into future IPO activity,” says Renaissance.
The firm says next year could be a “banner year for technology IPOs. A deep bench of tech unicorns has had years to prepare offerings. Volatility is low, corporate taxes are on their way down, and public market valuations are as good as they can hope for. Many tech firms will likely need capital, while employees and investors will seek much-needed liquidity.”
Among the star candidates for public listings in 2018 are Spotify, Lyft, Dropbox, and Pinterest. But these companies could fall victim to the same vagaries of the market that affected the likes of Snap and Blue Apron: a down quarter soon after the IPO, a fierce new entrant into a market, or a realization by equity investors that the firm was overvalued by private capital providers.
But Renaissance Capital remains hopeful: “At the minimum, we expect 2018 to match this past year’s activity, and would not be surprised to see as many as 200 IPOs raise $50 billion in a year that makes the IPO market ‘great’ again.”
If 2017 holds any lesson, however, it’s this: even in perfect conditions, IPO performance can be unpredictable.