Will The IPO Boom Come Back to Earth in 2022?

By Kirsteen Mackay

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Our 'Key Themes For 2022' is designed to help you identify and capitalise on the areas to watch out for. Here we have IPOs.

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2021 was a big year for IPOs, breaking all previous records in terms of the number taking place and the total amount raised. Liquidity in the financial systems, coupled with government stimulus policies, an acceleration in technology adoption and pandemic-fuelled growth in new areas, have all contributed to the surge of interest in IPOs.

NASDAQ powers 150 exchanges around the world, and here are some of the numbers it has seen in recent years:

Traditional IPO popularity surge

  • 2019: 188 IPOs raising $34bn

  • 2020: 316 IPOs raising $80bn

  • 2021 632 IPOs raising $150bn (by November)

Volatility, volume and the number of listed companies went up after the COVID crisis hit. The monetary policy backdrop has added fuel to this surge, but several trends converged to create a new financial market arena.

While interest in special purpose acquisition companies (SPACs) exploded in 2020, investor buzz wore off in 2021. Nevertheless, many companies still choose this option as it is easier, cheaper and faster than the traditional IPO route.

SPAC IPO popularity surge

  • 2019: 60 SPACs, of which 27 combined during the year.

  • 2020: 248 SPACs, of which 68 combined during the year.

  • 2021 526 SPACs, of which 286 combined during the year. (by November)

According to Lauren Dillard, an Executive VP at NASDAQ, 59% of these SPAC combinations achieved valuations above their listing price.

Meanwhile, in November 2021, James Fleming, Citigroup’s global co-head of equity capital markets, said:

“Worldwide we had never seen more than $1tn of equity issued in a year. Then last year we had $1.1tn of equity issued during COVID. I thought we would never see those numbers again, and here we are approaching $1.5tn at Thanksgiving — these are extraordinary numbers.”

Boom or bust?

However, investor enthusiasm appears to be short-lived, with the Financial Times suggesting half of 2021’s billion-dollar-plus IPOs have fallen below listing price. These include big-name stocks like Oatly (NASDAQ: OTLY), Deliveroo (LON: ROO) and Paytm (NSE: PAYTM).

America’s low-interest environment helped growth stocks thrive in 2020 and the beginning of 2021. But growth stocks are less appealing in a high-interest rate environment, and the prospect of interest rate hikes has created an undercurrent of market fear.

But, while this is true with a longer-term view, the prospect of a shiny new stock still has investors arriving in their droves to make a quick buck. That’s why many IPOs will spike and then fall back as short-term traders take advantage of a surge in liquidity.

Dealogic: Comparing the data

  • 2019: 33% of big IPOs were below the issuance price a year later.

  • 2020: 27% of big IPOs were below the issuance price a year later.

  • 2021: 49% of 43 IPOs that raised over $1bn were trading below the issuance price by November 2021.

Meeting retail investor demands

According to Lauren Dillard at NASDAQ, retail investors now account for 20% of the activity happening in the public markets. Although still institutionally driven, the rise of the retail investor shouldn’t be ignored.

Fees, liquidity and valuation all matter to investors. The liquidity factor is an issue that an IPO usually solves, which is why investors are attracted to an IPO. But it’s also a trap to be careful of. As soon as liquidity dries up, it becomes challenging to offload shares and the price falls.

ESG is another factor of increasing importance to the retail investor and again can’t be ignored. As such, IPOs in the coming year are likely to highlight their ESG stance more than ever before.

Will the IPO and SPAC boom continue in 2022?

IPOs thrive in a bullish market environment. If market sentiment turns bearish, some companies may postpone or cancel their IPO plans.

Nevertheless, as the recent IPO boom has helped many companies raise funds and prominence, the trend appears likely to continue into 2022, even if the tide is turning on market sentiment.

Bank of America predicts $100bn worth of EV IPOs to hit the financial markets by the end of 2023. The electrification drive is hot and shows no sign of slowing down anytime soon. Expect this to include vehicles, batteries and charging stocks.

Heady valuations

Undoubtedly the craziest IPO valuation of 2021 would have to go to electric car company Rivian (NASDAQ: RIVN). As COP26 encouraged a bullish wave of EV excitement to thrive, the Amazon-backed stock soared. In fact, it achieved a market valuation exceeding $100bn and became the second largest US auto company by market cap. A ridiculous feat for a company that had only delivered 156 vehicles, most of which went to employees.

Also, NFT marketplace OpenSea saw a valuation jump from $23m at a Series A round in March, to $1.5bn at a Series B round in July and a whopping $10bn in November. It will be one to watch for a future IPO. 

Big IPOs to look out for in 2022

Here are a selection of closely watched companies rumored to be considering a 2022 IPO. 

Starlink, currently being operated by SpaceX. Being an Elon Musk company, this is sure to attract extreme speculation when it finally goes public. Starlink is a satellite communication system, which includes 4,000 satellites, with an expected bandwidth of web traffic of up to 50%. Satellite internet infrastructure in space could be a gamechanger for expanding 5G coverage, enabling 6G internet connections and ramping up the transition to Web 3.0. However, there is no Starlink IPO date set yet.

Reddit is among the top 20 most visited websites on the Internet. The popular social media platform has over 52 million active users every single day. It is home to the original meme stock short squeeze creation crew r/wallstreetbets. For that reason alone, Reddit is sure to garner mass interest at IPO.

Buy now pay later (BNPL) fintech Klarna quadrupled its valuation in 2021 and is another IPO to watch. The BNPL trend is set to continue as emerging markets welcome the low bar to entry for consumers looking to better manage their money. Klarna is a company to watch for potential IPO news.

Chime is the largest digital bank in the US. It competes with N26, Revolut and Nubank. There is no IPO date set for Chime, but a recent Forbes article said it’s targeting a March 2022 IPO at $45bn to $45bn. 

Boston Dynamics is owned by Hyundai Motor Company (OTCMKTS: HYMTF). It builds futuristic robots and advanced software to simulate human behavior. Its high-profile customers include SpaceX and the US Army. Check out our free healthcare report.

Rumors of a Stripe IPO have been circulating for some time. The disruptive fintech took second place after ByteDance as the world’s most valuable venture-backed company. But Co-founder John Collison recently said the $95bn company is very happy staying private, so a 2022 IPO may not be a given.

Discord is a widely popular social chat app originally popular with gamers that has branched into finance and crypto chats and all manner of other niche topics. It has over 150 million active monthly users worldwide. Discord came close to being acquired by Microsoft (NASDAQ: MSFT), but this never transpired, and now an IPO seems the logical next step.

Other hot companies to keep on your radar for a potential 2022 IPO include InstaCart, ThoughtSpot, Orange, Syngenta, Postmates, and Wintershall DEA.

Going by the uptick in recent years' activity, IPOs will continue to thrive and surprise in 2022. There may be closer regulatory scrutiny from the SEC, particularly around SPACs, but that may help protect investors in the long run.

Investors want access to emerging growth stocks, so IPOs continue to be an area all investors should pay attention to.

Want to know more about our other key themes for 2022? Download our exclusive free report.

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In this article:

Topics:
IPO
Industries:
Consumer Staples
Consumer Discretionary
Information Technology
Companies:
Deliveroo
Oatly Group AB

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.