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IPO update: Dealmaking recovers

Key takeaways

  • IPOs were crushed in 2022 but since then they have performed better.
  • Improving economic conditions have helped more deals be completed. 
  • Some high-profile IPOs that could hit the market this year include Reddit, Panera, and ServiceTitan.

It's been a rollercoaster ride for IPO investors over the past several years: 2021 was the best year for IPOs since the era, 2022 was a historic collapse, and 2023 saw the IPO market build back some momentum. What does 2024 hold? Some analysts think the groundwork has been laid for IPO activity to speed back up.

Here's what's happened in the IPO market, plus a look at some of the biggest names that may go public this year.

IPOs halt freefall

After US IPOs experienced a historic drop during 2022 for both number of deals and proceeds raised, 2023 was an improvement. 108 IPOs closed resulting in $19.4 billion in proceeds—besting 2022's 71 completed IPOs that netted just $.7.7 billion (see US IPO activity chart below).

US IPO activity

IPO chart graphic
Source: Renaissance Capital. Data includes IPOs and direct listings with a market cap of at least $50mm and excludes closed-end funds and SPACs. Includes IPOs scheduled to price before 12/31/23.

Global stocks gained 22% and US stocks gained 24% in 2023, and IPOs caught the tailwind. The Renaissance IPO Index, which tracks the performance of newly public companies, surged 52% in 2023.1

Better economic conditions and a rallying stock market were main drivers of IPOs getting moving again. Considering the relatively higher risks associated with newly public companies, investors were willing to take on more risk compared to 2022's bear market.

But 3 factors held back IPOs in 2023: Bank failures in the early months, more rate hikes, and increasing geopolitical turmoil throughout the year. Some IPO watchers think that expectations for at least a couple of rate cuts this year will help boost IPO activity. The Renaissance Capital IPO ETF () is down 4.5% year to date, perhaps taking a breather after having sped up so much in 2023.

IPO activity was spearheaded by 3 big ones last year: chip giant Arm (), consumer products carve-out Kenvue (), and sandal maker Birkenstock (). In fact, those 3 IPOs raised over half of the total proceeds for all IPOs in 2023. Some of the biggest IPOs that could arrive this year include BBB FoodsReddit, Panera, Shein, and ServiceTitan.

Proceed with caution

Is investing in IPOs right for you? Of course, it depends on your investing objectives and risk tolerance. With that said, if you have an interest in IPOs, you should proceed with extreme caution.

IPOs can generate buzz among investors, particularly for so-called "hot issues" that garner a lot of interest. But beware of getting caught up in the hype. IPO investing can be complex and may be suitable only for experienced investors.

There are unique considerations to keep in mind when it comes to investing in IPOs. For example, the stock of an IPO can be particularly unpredictable on its first day—and also in the first few months—of trading.

There is also the issue of access to IPOs. For individuals, getting shares of an IPO at the stated initial offering price may be hard, since the majority of the shares are typically acquired in large blocks in advance by institutional investors. As a result, the closing price after the first day of trading may be a more accurate price at which individual investors may be able to get shares.

Moreover, extracting long-term value out of IPOs, even successful ones, can be tricky for a retail investor. For example, suppose you identify an IPO that you find attractive as a long-term investment, and the price at which it begins trading on the IPO date is $20 (which is by no means a given). If you were to buy the shares at around this price, and by the end of the IPO day the stock price had risen to $30, you might think this is a winning trade.

But take a step back. This means that the company and its underwriters (a financial group, typically a bank that is responsible for determining the market price of an IPO) underestimated demand for the company's stock. Therefore, the company lost out on the opportunity to raise more money to grow its business, because the IPO was mispriced (i.e., instead of receiving, let's say, $30 a share from the public, it will have received only $20 a share). In this scenario, if you were looking for short-term profits, great. If you are a long-term investor, however, a mispriced IPO may not be in your best interest.

Do your homework
IPOs and you

Individual Fidelity investors can sign up to participate in an upcoming IPO (there are eligibility requirements).

One of the primary difficulties that some investors face when it comes to researching companies that have not yet become public is the extent to which there is access to information. Publicly traded companies in the US, for example, are required by the Securities and Exchange Commission (SEC) to disseminate financial information quarterly. Private companies are not required to do the same (although they do have SEC-mandated disclosure requirements that must be made available to prospective investors in advance of an IPO, a key source of information for an IPO investor being the prospectus).

Perhaps more importantly, individual investors may not have the time or skill needed to evaluate all of the available financial data and to consider the implications to future operating results of the transition from a private to a public company. Consequently, for those investors who do not have access or the skill to analyze all of the financial information necessary to build an informed view of a potential IPO opportunity, it may be hard to fully assess the company's merits as a sound investment.

One way that you might be able to navigate the intricate IPO waters is to consider a managed fund. Most investment management companies have the research capabilities and resources needed to conduct this analysis, which many individual investors are not able to do. And, as always, it is important to build a diversified portfolio, given that one of the risks of IPOs is the stock-specific risk that is present in any concentrated, individual investment.

Check out our IPO calendar

View initial public offerings (IPOs), download a prospectus, or participate.

More to explore

There are risks associated with investing in a public offering, including unproven management, and established companies that may have substantial debt. As such, they may not be appropriate for every investor. Customers should read the offering prospectus carefully, and make their own determination of whether an investment in the offering is consistent with their investment objectives, financial situation, and risk tolerance. 1. Source: Renaissance Capital, as of February 8, 2024. The Renaissance IPO Index reflects approximately the top 80% of newly public companies based on full market capitalization, is weighted by free float capitalization, and imposes a 10% cap on large constituents. Sizeable IPOs are added on a fast entry basis and the rest are added during scheduled quarterly reviews. Companies are removed two years after their initial trade date, when they become seasoned equities.

Past performance is no guarantee of future results.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917