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IPO Market Analysis: Reflection on 2023 and Expectations for 2024 IPO Market Analysis: Reflection on 2023 and Expectations for 2024

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SEC Form S-1 (IPO concept)

As the curtains closed on the year 2023, the U.S. IPO market left much to be desired, with negative median returns and a stabilizing deal volume. The disappointment was further exacerbated by the underperformance of Asia-Pacific region-based companies and the drag resulting from IPOs priced at $5 per share or lower.

However, hope shines on the horizon as we turn our attention to the year 2024, with prevalent predictions for incremental increases in deal volumes. This optimism is tempered by the acknowledgment that the public market/private market valuation gap, especially in the technology subsectors, will persist. Notably, private market valuations continue to overshadow public valuations.

2024 is expected to unveil a handful of quality IPOs sprinkled throughout the year. Investors are advised to focus on companies with a robust history of revenue growth and either lowering operating losses or burgeoning profits.

This period presents an opportunity for investors to gravitate towards IPO companies backed by substantial track records and easily understandable business models. It calls for a prudent approach while eschewing hype-induced behaviors and exercising utmost discipline in IPO investment choices.

The Bittersweet Memory of 2023 U.S. IPO Activity

In 2023, a total of 141 IPOs raised $22.2 billion in gross proceeds, excluding underwriter options and concurrent private placements. Although this reflected a 15.1% decrease in the number of IPOs compared to the previous year, there was a 21.3% increase in the gross proceeds raised, hinting at a trend of a smaller number of larger IPO sizes.

Despite the promising gross proceeds, the median return for all 2023 U.S. IPOs through the end of the year was a disheartening negative 22%. This poor performance can be largely attributed to the negative impact on valuations for growing but money-losing companies in a higher cost-of-capital environment.

Comparatively, the median return for all 2022 U.S. IPOs through the end of that year was a paltry 0.3%. Although a meager result, it stands head and shoulders above the substantially negative performance of 2023.

A chart depicting the number of U.S. IPOs on a quarterly basis since Q1 2015 vividly illustrates the erratic IPO activity over the years. The chart reveals a sharp rise in IPO activity during the pandemic years of 2020 – 2021, followed by a plummet when the pandemic waned and inflation ensued.

The decline in IPO activity was also evident in the number of SPAC IPOs, which sharply dropped from 73 in 2022 to 27 in 2023. Additionally, a critical rule change by the SEC led to an exodus of major investment banks from the SPAC market, signaling a significant shift in the landscape.

The seasonal variation of the number of IPOs throughout the year is showcased in another chart, with the first quarter emerging as the busiest quarter of the year. These fluctuations serve as a reminder of the market’s capricious nature.

U.S. IPOs by Industry: Unveiling the Leading Sectors

Throughout the year, a total of 38 industries were represented with at least one IPO. Notably, 20 industries saw only one IPO, signifying a broader distribution compared to the previous year.

SPACs led all industries with 27 IPOs, followed closely by biopharma and consumer firms, each contributing 18 IPOs. Financial services and transportation companies were also well-represented by eight IPOs each.

The distribution of IPOs by industry is further elucidated in a chart, offering a visual representation of the varying levels of participation across sectors.

Additionally, a pie chart breaks down the number of IPOs by industry, portraying the percentage contribution of each sector to the total, offering a different perspective on the data.

U.S. IPOs by Country of Origin: A Global Perspective

U.S.-based companies accounted for 79 of the 141 total IPOs, representing 56% of the total. This percentage witnessed a noticeable decrease from 2022, highlighting the increased international IPO sources during 2023.

China emerged as the second most prolific source with 29 IPOs, up from 7.2% of the total in 2022. Japan’s output tripled from two IPOs in 2022 to six in 2023, adding to the diversification of the IPO landscape.

Israel, Singapore, and Malaysia also witnessed significant changes in their IPO outputs, signaling an expanding global footprint in the IPO market. The summary chart of IPOs by country of origin provides a clear overview of this global participation.

Average Percentage Return Since IPO by Industry: A Tale of Varied Fortunes

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