By Paul R La Monica, CNN Business
Unicorns, the nickname for billionaire startups looking to go public, are becoming an endangered species on Wall Street. (Of course, unicorns are fictional beasts too. But you get our meaning.)
The market for IPOs, as well as for SPACs — companies debuting through mergers with blank-check special purpose acquisition companies — often dries up in the summer. However, there has been an even more pronounced lack of IPOs this year due to the volatility of the broader market.
According to data from Renaissance Capital, a company that researches and invests in IPOs, there have been just 53 IPOs so far this year, down more than 80% from the same period in 2021. Additionally, just 94 companies filed for an IPO in 2022, down 70% from a year ago.
This means there may not be a significant increase in new stocks making their Wall Street debut anytime soon. Still, experts hope some unicorns could hit the market later in 2022.
Leading grocery supplier Instacart confidentially filed for an IPO earlier this year, meaning it is yet to reveal many financial details. Instacart valued itself at $24 billion just before its IPO, but that’s a sharp drop from its peak valuation of $39 billion in 2021.
There are also reports that private investors in Instacart have lowered their ratings even further. When exactly Instacart will go public is not yet clear.
“Valuations have largely corrected themselves from the 2021 highs,” said Rachel Gerring, head of IPOs at EY Americas. Gerring said the stock price drop hasn’t helped companies that went public last year. (Robinhood, Bumble, and Oatly, for example, are all 2021 IPO “graduates” that fell this year.)
“The underperformance of companies that went public in 2021 does not bode well for companies looking to go public now. Companies are waiting to see how things settle down,” said Gerring.
However, investors are also keeping an eye out for other unicorn IPOs. Epic Games, the developer behind Fortnite, is an often-cited IPO candidate. And according to research firm CB Insights, which has what it calls a unicorn list that tracks startup valuations, Epic is worth $31.5 billion.
Crypto investment firm FTX and sporting goods company Fanatics are also frequently mentioned in IPO rumors. FTX is valued at $32 billion, according to CB Insights, while Fanatics is valued at $27 billion.
And then there are the two mega unicorns. ByteDance, the Chinese owner of social media app TikTok, and Elon Musk’s SpaceX. Both are valued well over $100 billion. Neither company has given any indication that they intend to go public in the near future.
Still, the IPO market should open up a little later this year. Even if the biggest unicorns remain on the sidelines, other private companies could take advantage of the fact that the broader market has rallied as inflation fears began to ease.
Will Braeutigam, head of capital markets transactions at Deloitte, said the IPO window could open in the fourth quarter of this year or early 2023 for more companies to have price offers.
“The market today knows more about inflation and how the Fed is taming it,” Braeutigam said. “The sun is rising. It’s getting better.”
What’s next from the Fed?
The next Federal Reserve rate meeting isn’t until September 21st, which seems like eons away in this fast-moving/short-term obsessive world.
However, traders could get more clues as to how the Fed views the outlook for inflation and jobs at the next Jackson Hole event.
The annual symposium, held in late August in the resort town of Wyoming, is usually newsworthy. A-listers from the investment world and central bankers usually meet to discuss what’s next for the economy. This year should be no exception. Fed Chair Jerome Powell is scheduled to give a speech on Friday morning.
How aggressive will the Fed be in future rate hikes? Investors will be watching every word Powell says for clues. Currently, Fed fund futures trading on the Chicago Mercantile Exchange are pricing in that there is controversy over whether the Fed will hike rates another three-quarters of a point in September or just half a point instead.
Powell is unlikely to go into details about future rate hikes. He’s more inclined to repeat the mantra about how “data dependent” the Fed is and will now take things “meeting to meeting” in terms of guidance.
But with recent economic data showing that the job market is still strong and that inflation is beginning to cool, some experts are wondering whether the Fed will be able to slow the pace of its rate hikes even further. There are fears that if the Fed moves too aggressively, it could lead to a recession.
“Powell and other Fed members may be considering staying on their current path,” said Don Calcagni, chief investment officer at Mercer Advisors. “The downside risks to the economy are very real.”
With that in mind, Calcagni said he wouldn’t be surprised if the market soon starts pricing in the possibility of hikes of as little as a quarter-point at the next few Fed meetings.
Next
Monday: Earnings from Zoom
Tuesday: Sale of new homes in the USA; Earnings from JD.com, Medtronic, Macy’s, Dick’s Sporting Goods, Smucker, Nordstrom, Toll Brothers, Advance Auto Parts, Intuit and Urban Outfitters
Wednesday: US Durables; Revenue from Salesforce, Nvidia, Williams-Sonoma and Victoria’s Secret
Thursday: Fed Jackson Hole Symposium Begins; Weekly Unemployment Claims in US; Revision of US GDP for the second quarter; Earnings from Dollar General, Dollar Tree, Abercrombie & Fitch, Peloton, Dell, Gap, Ulta Beauty, Workday and Affirm
Friday: Fed Chair Powell speaks in Jackson Hole; Personal Income and Expenditure in USA; University of Michigan Consumer Sentiment
The CNN Wire
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