Share Prices Hint At Cooldown Of ‘Red-Hot’ IPO Market

Has the red-hot IPO market begun to cool down? The numbers would seem to indicate that it has.

The share price of tech companies going public through initial public offerings (IPOs) has risen an average of 41 percent as of their first day of trading, according to a report in The Information on Friday (April 23). That number is down from an average first-day jump of 59 percent in the first two months of the year.

However, the 41 percent figure was skewed by the eSports Technologies IPO — its stock jumped 507 percent on its first day. When putting aside the gaming platform’s debut, March’s average first-day trading increase for IPOs is only 18 percent, roughly half of last year’s average first-day increase.

“The cooling off appears to be a result of a flood of new tech listings hitting the market at the same time, [so] that tech stocks have gone on a roller-coaster ride after hitting new highs,” noted the report, citing figures from Dealogic. “So far this year, 37 tech companies have gone public via traditional IPOs on U.S. exchanges, already more than half the number from all of last year. And that’s not counting the onslaught of tech startups that have gone public by merging with blank-check companies or via direct listings, as cryptocurrency platform Coinbase did last week.”

According to the report, the weaker market has led to several IPOs trading below their selling price on their first day, a scenario known as a “broken” IPO. That happened to four of the 21 IPOs that listed in the U.S. in March, but to just one of the 16 that listed in January and February.

This news follows a boom in IPOs that occurred in 2020. The U.S. markets alone recorded 480 IPOs last year, a more than 100 percent increase from 2019.