Compared to previous years, 2021 was a terrible year for blockbuster IPOs. According to Financial Times, half of this year’s big IPOs — companies that raised over $1B upon going public — are now trading below their listing price.
The number of IPO flops this year was far higher than past years. After 12 months of trading:
- 27% of companies traded below listing price in 2020.
- 33% of companies traded below listing price in 2019.
What were some of the biggest flops of 2021? Since their first day closing prices:
- Didi (NYSE:DIDI) — the Chinese ride sharing service — is down 49%.
- Coupang (NYSE:CPNG) — the e-commerce giant of South Korea — is down 46%.
- Oatly (NASDAQ:OTLY) — the oat milk company — is down 54%.
Reminder: On average, US tech IPOs underperform 5-6 months after going public — around the time when most insiders are able to begin selling (180 days after IPO). Retail investors also have reasons to be cautious with blockbuster IPOs.
- According to senior investment director at Abrdn (via FT), pressure from large private investors lead to high valuations.
- This often benefits pre-IPO investors and insiders — at the expense of retail investors post-IPO.
The Joe’s Take: With the market expecting a riskier 2022 ahead — investors should be extra cautious of companies trading at extreme valuations. Market corrections could take these companies down harder than the average.
When it comes to investing, valuations matter.
