Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Don't Expect Rebound in IPO Activity Anytime Soon - Goldman

Published 09/28/2022, 09:10 AM
Updated 09/28/2022, 09:29 AM
© Reuters.  Don't Expect Rebound in IPO Activity Anytime Soon - Goldman

© Reuters. Don't Expect Rebound in IPO Activity Anytime Soon - Goldman

By Senad Karaahmetovic 

Goldman Sachs strategist Ryan Hammond commented that the Initial Public Offerings (IPO) market looks "frozen" in 2022. According to Goldman's data, only 32 companies went public via IPO this year for $2.5 billion.

This marks a plunge of 88% from last year when 259 new companies were launched.

"The jump in the cost of capital has reduced the valuation of all companies, public and private. But the impact has been particularly severe for fast-growing firms that typically comprise a significant share of annual IPO volume," Hammond explained in a client note.

Goldman's study of almost 4,500 IPOs completed in 25 years has led them to believe that "investors should focus on firms generating rapid sales growth during the first three years rather than prioritizing immediate profitability, but that a path to profitability eventually matters."

Hammond also noted that IPOs completed in the last few years "have performed particularly poorly."

"The median IPO since 1995 underperformed the Russell 3000 index by 19 pp during its first 12 months as a publicly traded company. In contrast, the median IPO since the start of 2020 has lagged the Russell 3000 by a staggering 46 pp over its first year as a publicly traded company."

More importantly, Hammond also discussed when the IPO activity could pick up again. Goldman strategists believe it is "still too early to expect a meaningful uptick in IPOs in the near term," given record-low confidence.

"The murky outlook means a wider-than-usual distribution of potential outcomes that is likely to constrain IPO activity in the near term," the strategist added.

On a more positive note, public market valuations are still fairly elevated - despite the YTD selloff - which is supportive of IPOs.

"Above-average valuations suggest private companies may still find attractive public market valuations relative to history, but a return to peak 2021 valuations appears unlikely without a sharp decline in interest rates," Hammond concluded.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.