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When a company goes public, it’s like its bar mitzvah. They have reached adulthood and are ready to take responsibility for their actions.
But many companies who have celebrated their bar mitzvahs lately are realizing that growing up kind of sucks.
Create the framework
The IPO market boomed in 2021.
In the first nine months of 2021 alone, 785 companies went public in the US, compared to 664 in all of 1996 – the beginning of the internet stock craze, Paul La Monica reported. These IPOs included Bumble, Oatly, Robinhood and Allbirds.
Rivian, the electric vehicle maker, also got in on the fun in November of that year, in what was then the largest IPO since Meta. On Rivian’s first day of trading, shares closed nearly 30% higher.
But it wasn’t just the IPO market that was booming. It was the entire stock market.
This came as the economy was getting back on track after pandemic restrictions were lifted and people were essentially in “treating yourself” mode on steroids.
The Federal Reserve also played a role by keeping interest rates near zero. Investors’ money wasn’t tied up as much in loan payments, so they could invest more in the stock market.
Then in March 2022, Fed Chairman Jerome Powell et al. They woke up from their temporary inflationary slumber and realized that they couldn’t just turn off inflation and said, “Well, uh, yeah, I think we have to do something.” That something raised interest rates.
And with that, among other things, the little “Ferris Bueller’s Day Off” party on the stock market began to fail, as did the IPO hopes and dreams of many companies.
Overall, the U.S. IPO market fell 94.8% to $8 billion in 2022, a 32-year low.
Fast forward to 2023
Although the Fed continued to raise interest rates, the stock market began to come out of its slump and suddenly the IPO market came out of hibernation.
Headliners at the IPO festival launching this year include UK-based chip designer Arm, Instacart and Birkenstock, which debuted earlier this week.
Poor and Instacart at least got a taste of the good life before things got worse. In the first few days of trading, shares of both stocks closed well above their IPO prices. Since then, they have lost all of their initial gains and their shares are well below their IPO prices.
Poor Birkenstock closed down 13% on its IPO day on Wednesday. And on Thursday it closed down nearly 7%.
Like I said, growing up sucks. It’s especially annoying when major unrest takes place that is beyond your control and you’re on your own. Stocks across the board have plummeted due to the rise in U.S. Treasury yields (read more here).
However, the other side of this is that companies may simply be setting their IPO prices too high. As Nightcap wrote earlier this week, companies going public can say how much they think they are worth by setting an IPO price. But once trading begins, investors can assess whether they think it’s worth it.
Sometimes companies even deliberately set their IPO prices low so that investors get excited and immediately buy shares, driving up prices. This was obviously not the case with Birkenstock.
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