The Number of IPO Listings Has Plunged in the U.S. While Some Investors Are Nursing Losses of 70 to 95 Percent
Through last Friday, there have been 148 IPOs (Initial Public Offerings) in the U.S. this year, the lowest number in the past six years. But what is more striking about the U.S. IPO market is how poorly these IPOs have performed for investors.
Through December 1, 87 of the 148 IPOs (59 percent) that made their debut this year have a share price that is negative from the offering price. Even more stunning, 34 of the IPOs have losses of 70 percent to more than 90 percent from their offering price. Another 19 IPOs have losses of 50 percent to 69 percent of their offering price.
This is not a good look for what stock exchanges in the U.S. are willing to list and offer up as publicly-traded companies to mom and pop investors, public pension funds and the like.
The worst of the IPO performers this year is Surf Air Mobility Inc., a venture capital-backed regional air carrier with stated aspirations of developing electric planes. Its IPO price was $20 a share; it began trading at $5 on July 27; its shares closed last Friday at 82 cents.
MIT Technology Review reports the following about the current prospects for electric planes:
“Today’s batteries don’t have the energy density necessary to power anything but the lightest planes. And even for those, the trip will be about as far as a long bike ride.”
The prospects for the future of Surf Air Mobility Inc. were so dim that the registration statement filed with the SEC carried a going concern warning, writing as follows:
“The Company’s ability to continue as a going concern is dependent upon its ability to raise additional capital and to maintain revenues and generate profit from operations. The Company has funded its operations and capital needs primarily through the net proceeds received from the issuance of various debt instruments, convertible securities and preferred and common share financing arrangements. A significant amount of funding to date has been provided by entities affiliated with an officer and co-founder of the Company. The Company is evaluating strategies to obtain the additional funding for future operations. These strategies may include, but are not limited to, obtaining additional equity financing, issuing additional debt or entering into other financing arrangements, restructuring of operations to grow revenues and decrease expenses. There can be no assurance that the Company will be successful in achieving its strategic plans or that new financing will be available to the Company in a timely manner or on acceptable terms, if at all.”
So, you are asking the public to invest in the future of your business while you are warning about its potential death.
Even much hyped IPOs have fizzled this year. Instacart (corporate parent name Maplebear Inc.) went public on Tuesday, September 19, at $30 a share. It is the online grocery shopping and home delivery service. While it closed its first day of trading at $33.70, it has swooned ever since, closing last Friday at $25.37, a 15 percent decline from its offering price. The company had a valuation of $39 billion in 2021. By the time it went public this year that valuation had collapsed to $9 billion.
There may be more bad news ahead in December for some IPO investors. Tabb Forum reports that a number of companies that IPO’d this year are hitting their lockup expirations this month. The expiration of a typical six-month lockup means that insiders could dump their stock, putting more downward pressure on some IPO share prices.
In particular, Tabb Forum reports on CAVA Group (ticker CAVA), writing that it faces a lock-up expiration on Monday, December 11. CAVA is the fast-casual Mediterranean restaurant offering pitas and grain bowls. It went public on June 15, 2023 at $22 a share and soared to $43.78 on its first day of trading. The share price set new records in July, rising to over $55 a share before plummeting to the $30 range in October. It closed last Friday at $36.22.
The IPO deal drought has resulted in thousands of job cuts across Equity Capital Market (ECM) desks at Wall Street mega banks and other global banks.