IPO activity dropped sharply in the first half of 2022. According to FactSet data, 1073 companies IPO’d in 2021, raising $317 billion; in the first half of 2022, the total was just 92 companies, raising just under $9 billion. Well, if you look at the graph above, 2020 and 2021 look more like anomalies than the norm. After two overheated IPO years, it’s time for things to cool down a little bit. If the second half of 2022 follows the current trend, the number of IPOs will be down ~80% from 2021 but only ~25% down from 2019.
The 2021 IPO class also performed quite poorly with respect to the indexes. According to this Bloomberg Article dated Dec 22, 2021, on a weighted average basis, the IPO class of 2021 is up only about 1.6%. Meanwhile, the Nasdaq Composite and S&P 500 indexes have returned 19% and 24% respectively in 2021 despite a major selloff in December. I just pulled out the performance YTD (1/1/2022-7/18/2022) of the top 10 IPOs in 2021 ranked by deal size. As shown in the graph below the returns have been abysmal YTD after a low performance in 2021. Of the top 10 IPOs, only Bumble ( BMBL 0.00%↑ ) outperforms SPY 0.00%↑ or QQQ 0.00%↑ YTD but it’s still down 50% from the IPO day close. The other 9 companies are down from 40% to 73% YTD!! Cryptos and SPACS are comparably bad in terms of investment returns YTD. In other words, the hottest sectors of 2021: IPOs, Cryptos and SPACS are among the worst performers in 2022. In retrospect, it’s not too surprising. But it doesn’t appear that the majority of investors took their profits in 2021.
The interesting thing here is how people get caught up in the mania over and over again. Last year the stock group I am in was filled with discussions about AFRM 0.00%↑ , UPST 0.00%↑ , ASAN 0.00%↑ , etc. People were so optimistic that they forgot that hyper growth is hard to sustain and valuations do matter. I considered myself pretty good at avoiding FOMO. But I still bought into COUR 0.00%↑ when it fell from its IPO highs. Theoretically, I know I should avoid hot sectors because they mostly turn cold a year or so later. But practically, I made the mistakes I precisely wanted to avoid. Now the pendulum has swung the other way. I am not so confident I can do the theoretical “Be greedy when other people are fearful” thing. I am probably going to do the exact opposite. C’est la vie.