104 companies have newly listed on the US stock market this year. As of today (and not surprising considering the hurricane-strength headwinds against IPOs since H2 2022) this is 30% less relative to the same time in 2022, which had 149 IPOs by this date and is minuscule compared to the 1035 all-time record new listings in 2021 ─ the year of the IPO gold rush!
Some of the high-profile listings this year were restaurant chain, Cava and JNJ’s former consumer health division, Kenvue; and the returns corner was dominated by biotech names like Genelux and Structure Therapeutics up 264% and 97% YTD respectively.
Technology, scorched last year, has been inconspicuous so far (Some tech investors might enjoy the nostalgic feelings of 2021 that the choppiness of VINFAST evokes in them; and may have even watched the 90% listing day plunge in Better with emotions similar to what the cavemen of yore may have experienced when they first learnt the pros and cons of handling fire)
And yet, as Arm and Instacart get ready to list, technology does appear to dominate the back half of the IPO pipeline this year. And the buzz gets stronger around the potential listing of TikTok, Epic Games, Stripe and Discord.
Apart from the absence of tech names, 2023 has been an unusual IPO year in another way: there was only one direct listing.
Surf Air Mobility was the sole company to list directly.
Listing directly has some advantages:
1. The firm avoids paying underwriting fees.
2. Since no new shares are created, early investors aren’t diluted.
3. There is no lockup period
The direct-listing process doesn’t come without its drawbacks though: the obvious ones would be that there is no new capital, there is no green-shoe option to address a potential surge in demand come listing day; and the initial phase of the listing is marked by intense bouts of price volatility (Surf Air has plunged 57% since its July 27th listing)
Look at those drawbacks again: they are interesting because the period from 2018 to 2021 was marked by companies choosing to list directly (not really to avoid paying underwriting fees to investment banks, that’s a minimal gain) but because they were already flush with capital!
A look at some of the high-profile direct listings from 2018 to 2021 confirms this: Spotify (2018), Slack (2019), Asana (2020), Palantir (2020), Roblox (2021) and Coinbase (2021). Those balance-sheets had piles of cash!
There were only 11 direct listings in the 20 years prior to Spotify’s in 2018 and incredibly enough there have been 13 since then.
Against the backdrop of heavy-compression in private market valuations and the US Fed exercising a vice-like grip on credit, it will be interesting to see if Direct-Listings become more frequent or infrequent options from here on.
