The third quarter started off in high spirits but ended with a hangover. During the quarter, 39 deals raised $10.8 billion, down slightly from last year, but above the historical average.
Healthcare and tech companies again dominated IPO issuance, making up 62% of all IPOs due to biotechs and large US tech unicorns. Software unicorns Medallia and Cloudflare confirmed that there is still demand for high-growth tech stocks. On the other hand, the two largest offerings were both high-growth, high-profile disappointments, with SmileDirectClub and Peloton raising more than $1 billion but falling on their debuts. WeWork’s planned IPO turned into a highly publicized debacle that suggested public investors may finally be done overpaying for blazing-fast growth. First-day pops were relatively strong, but IPOs fell 12% on average from there to end the quarter with a 1% average return. The IPO Index slid 11%, and the combination of poor aftermarket returns and a dip in initial filings suggest that IPO activity will finish the year at a slower pace than previously thought, with greater price concessions on the part of issuers. We now enter the 4Q19 with several biotechs queued up and a few notable offerings on file, including jeans brand Madewell, waste management firm GFL, and Chinese education platform Youdao, but the vast majority of likely IPOs sit in our shadow backlog.
Key Takeaways:
- 39 IPOs Raise $10.8 Billion in a Fairly Active 3Q 2019
- Activity Again Led by Tech IPOs and Biotechs, with Tech the Best-Performing Sector
- Average IPO Ends Flat as Stocks Fall in Aftermarket Trading
- SmileDirectClub and Peloton Trade Down After Billion-Dollar IPOs
