IPO Dreams: Highs and Lows in the Stock Market

When a company goes public with an IPO, it’s akin to their coming-of-age moment, much like a bar mitzvah. They step into adulthood, ready to shoulder the responsibilities that come their way.

However, many companies that recently celebrated their “bar mitzvahs” are quickly realizing that being an adult can be quite challenging.

Setting the Scene

The initial public offering (IPO) market experienced a tremendous boom in 2021. In the first nine months of that year, 785 companies went public in the US, dwarfing the 664 IPOs for the entire year of 1996, which marked the dawn of the internet stock frenzy. Notable IPOs during this period included Bumble, Oatly, Robinhood, and Allbirds. Electric vehicle manufacturer Rivian also joined the party in November, marking the most substantial IPO since Meta’s. On its debut, Rivian’s shares closed almost 30% higher.

“And with that, among other factors, the stock market’s little Ferris Bueller’s Day Off shindig started to unravel, as did many companies’ IPO hopes and dreams.” Source/ Internet

The exuberance wasn’t limited to the initial public offering market; the entire stock market was on fire. This fervor coincided with the economy springing back to life after pandemic-related restrictions were eased, and consumers were in a “treat yourself” mode.

The Federal Reserve played its part by maintaining near-zero interest rates. This allowed investors to divert more of their capital into the stock market, as they weren’t burdened by loan payments.

The Unraveling Begins in 2022

In March 2022, the Federal Reserve, led by Chair Jerome Powell, recognized that inflation wasn’t a fleeting issue and decided to take action. They began raising interest rates.

Amid other factors, this marked the beginning of the stock market’s decline, along with dashed IPO aspirations for many companies. In 2022, the US IPO market plummeted by 94.8% to $8 billion, reaching a 32-year low.

Fast Forward to 2023

Although the Fed continued to raise interest rates, the stock market started to recover, and the IPO market reawakened.

Notable IPOs this year include UK-based chip designer Arm, Instacart, and Birkenstock, which recently made its IPO debut. Arm and Instacart initially experienced the good life, with their shares closing above their IPO prices. However, they’ve since given up those gains and are now trading below their IPO prices.

Poor Birkenstock experienced a 13% drop on its the initial public offering day, followed by another 7% decline the following day. Indeed, adulting can be tough, particularly when external turmoil takes a toll.

On the flip side, companies might be setting their IPO prices too high. While companies determine their IPO price, it’s the investors who ultimately assess its worth once trading begins. Sometimes, companies purposefully set lower IPO prices to spark investor excitement and boost share prices. This wasn’t the case with Birkenstock.

Navigating the initial public offering landscape can indeed be a challenging journey.