IPO market is seeing ‘reversal,’ slowdown in 2022: Research director
Last year was a record for initial public offerings (IPOs), with 397 U.S. IPOs raising around $142 billion. In stark contrast, only 17 IPOs have debuted so far in 2022. Renaissance Capital LLC Research Director Nick Einhorn believes several market dynamics are contributing to the slowdown.
“Last year was an extraordinary year for IPOs,” Einhorn told Yahoo Finance Live. "But starting in about October-November, we really saw a pretty steep decline in growth-oriented stocks — which, obviously, a lot of IPOs tend to be — and especially high growth, high loss companies like a lot of the big software names and other tech names that have kind of driven the IPO boom in 2021. So really, we're seeing a reversal this year.”
Einhorn joined Yahoo Finance Live to discuss the current performance of the IPO market. Renaissance Capital LLC is a Connecticut-based financial services firm specializing in IPO investment management and research. With over $800 million in assets under management, Renaissance Capital also manages the Renaissance IPO ETF (IPO) for U.S.-listed IPOs as well as the Renaissance International IPO ETF (IPOS) for internationally-listed IPOs.
Einhorn added that the IPO space may have been ready for a bounceback toward the end of the first quarter of the calendar year. However, just as markets finished digesting the transition from growth to value-oriented stocks in light of record inflation and the Federal Reserve’s rate hikes, Russia launched its invasion of Ukraine.
“Things kind of started out very slow as people kind of dealt with that fallout [of the move away from growth stocks],” he said. “And then I think we may have been ready to see a pickup starting in March. But then, obviously, the Ukraine news came out and that kind of shut everything down too.”
Indeed, the Russia-Ukraine war has had significant implications on companies’ decisions to go public. For instance, top Volkswagen (VWAGY) shareholder Porsche SE said on Tuesday that the timing of its plans to list luxury sports car manufacturer Porsche AG in Q4 2022 could be affected if the conflict drags on.
‘We need markets to stabilize’
In order for the IPO space to boom again, Einhorn believes that a greater level of stability needs to be achieved within the overall market. He pointed to the recent performance of the Renaissance IPO Index (IPOUSA.FGI), noting that the average 2021 IPO is down over 20% from its issue price.
“So we kind of need that number to stabilize a little bit, hopefully improve a bit too. And then we also need to see a little more valuation consensus between issuers and investors,” he said. “I think part of the reason we had so many IPOs last year was because valuations were at very high levels in a lot of places. And so companies kind of wanted to take advantage of that.”
Einhorn said that the market is experiencing a state of muted valuations compared to 2021, placing pressure particularly on high growth tech companies looking to go public. Just last week, Instacart slashed its internal valuation by almost 40% to about $24 billion in an effort to “help the company attract talent and adapt to market conditions,” according to Bloomberg.
“And that's kind of a sign of the sort of correction that we're going to need to see before IPO activity picks back up again,” Einhorn said.
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter @thomashumTV
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