Tech IPO trend stopped for the time being: Investors are turning their backs on high-growth stocks

• Numerous companies went public in 2021
• Significant decrease in the number of IPOs in January compared to the previous year
• High valuations and interest rate fears are turning away from high-growth stocks

Last year, numerous companies ventured onto the trading floor. In particular, the IPOs of US tech companies such as Coinbase, Robinhood and Rivian attracted a lot of attention from investors. However, that trend may now be over as volatile US stock markets have dampened investor appetite for high-growth stocks, according to Reuters.

A fall of 6.11 percent in the S&P 500 and a rise in the CBOE Market Volatility Index (VIX) from 18.53 at the beginning of the year to 24.18 points most recently (as of February 16, 2022) would have prompted many companies to postpone their IPO plans , the news agency reported.

Significantly fewer IPOs in January than in the previous year

IPOs raised about $6.9 billion in January this year, Reuters reports, citing Dealogic, down 83 percent from the same period last year. According to the news agency, some companies canceled their IPOs or postponed their listings back in January, citing unfavorable market conditions. Eddie Molloy, co-head of Equity Capital Markets for the Americas at Morgan Stanley, believes IPOs will continue to be fewer going forward: “You’ll probably continue to see fewer deals launching than you otherwise would have if the market wasn’t doing much here would have become more restless,” says Reuters.

Move away from high growth and risky assets

And so companies with a lot of growth, but which have little or no profit to show for the first time, were rebuffed by the IPO investors. According to Reuters, most shares of the 396 companies that went public last year, excluding SPACs, are already well below their initial public offering prices — an average of 28 percent, according to Dealogic — as investors worry about overvalued valuations made. The sell-off in tech stocks in January, driven by the prospect of rising interest rates, then scared investors further, and the NASDAQ Composite tech index has fallen 9.72 percent year-to-date to 14,124.09 points (as of February 16, 2019). .2022).

“Recent and anticipated interest rate moves are forcing investors to reassess cash flows, growth and risk, resulting in a move away from the highest growth and riskiest assets across sectors,” quoted Reuters as saying Andrew Wetenhall, co-head of Equity Capital Markets in the Americas MorganStanley. This raises questions about when the big tech IPOs, such as Intel’s autonomous vehicle unit, Mobileye or social media platform Reddit, expected this year will take place.

Investment bankers said direct listings could benefit at the expense of traditional IPOs if market volatility persists, according to investment bankers, as these IPOs are less vulnerable to market volatility.

Pipeline remains healthy

Despite the current situation, IPO bankers and lawyers have said the pipeline remains healthy for companies looking to go public in 2022, according to Reuters. Several technology unicorns are still planning their IPOs in the second half of 2022. “Markets abhor uncertainty, so any relief should improve the market environment, particularly for IPOs,” Reuters quoted Michael Ventura, managing director at RBC Capital Markets.

Jimmy Baker, President of B. Riley Securities, believes that the recovery in the IPO market will begin with the IPOs of companies that generate strong cash flows, as investors with low risk tolerance for loss-making unicorns are drawn to offers that promise yield. “There isn’t a lot of openness to IPOs. However, we expect there will be an openness to yield-oriented opportunities in the near future,” reports Reuters Baker.

Editorial office finanzen.net

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