Instantly Paused Offering?
Looking at your favorite stocks, you might be wondering how they entered the market. PayPal’s chart goes all the way to 2015, Twilio’s goes to 2016, and Zoom’s goes to 2019. How exactly do these stocks just appear with a ticker on the Nasdaq or the New York Stock Exchange? Recently, we’ve seen a rise in SPAC’s, which are blank-check companies listed in the stock market that private businesses merge with to become public. However, we will focus on the classic way that companies enter the stock market: an IPO.
The term “IPO” stands for Initial Public Offering. Simply put, it’s the process of a private company offering shares of their company to public investors, officially listing themselves on a stock exchange. To do this, they need to meet specific requirements listed by the SEC, and they often hire investment banks to decide the IPO price by underwriting the company. This can benefit the company because it allows them to raise capital through public investors like us who buy their stock, and it allows angel investors and venture capital firms to realize their gains by selling their shares on the public market. Oftentimes, retail investors are unable to buy shares at the IPO price, instead having to wait for the first price movement to enter.
At the beginning of 2020, the IPO market saw a slowdown due to increased volatility. This was a result of the COVID-19 pandemic, which sent the markets into a freefall and the VIX up more than 100 percent. Private companies prefer to become public in a bullish environment, which explains the boom in the IPO market since March. Notable IPOs in 2020 include XPeng, an EV company, Rocket Companies, an insurance company, DoorDash, a food delivery company, and the biggest software IPO in history, Snowflake. Snowflake attracted Warren Buffett himself, who doesn’t usually invest in technology or an IPO. 2021 brought even more, with Bumble, a dating app, Coupang, a retail company, and Coinbase, the largest cryptocurrency exchange, all going public.
Unfortunately, we are getting signs of another IPO cooldown. Enact Holdings, a mortgage insurance company, announced on Wednesday that they were going to delay their IPO. On Thursday, two more private companies joined the boat with Hear.com, a hearing-care provider, and Zenvia, a communications company, both announcing that their IPOs would be delayed with no date in plan. This came because of the recent selloff in US stocks due to inflation, which has sent the indices close to correction territory. With the current uncertainty about how high prices will go up, the companies decided that now was not the time. Along with that, most of the businesses that are entering the market these days tend to be growth companies, which isn’t the best thing as growth has been selling off the most recently. Do you think that the IPO market will continue to slow down?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
