IPO Statistics 2014-2020: Is There a Bubble?

An initial public offering, IPO, or stock market launch is the first sale of stock by a private company to the public. During 2019-2020 we could observe an IPO hype when hundreds of companies launched an IPO and did it successfully despite the fact that many of them were "dead inside" and before IPO had no profits prospects for growth. But this situation was not always the case. In this article, we'll see IPO statistics for 2014-2020 and compare the latest years to the average.

Companies used in the study

Overall, 455 American companies were checked, from 11 different sectors and many industries. All the companies launched their IPOs in the period from 2014 to 2020: 279 from 2014-2018 and 176 from 2019-2020.

Sector Number of IPOs
Basic Materials 4
Communication Services 14
Consumer Cyclical 28
Consumer Defensive 10
Energy 17
Financial 57
Healthcare 208
Industrials 24
Real Estate 19
Technology 73
Utilities 1

 Overall (all sectors)

 455

Taking into consideration the observation numbers shown in the table above, we can make statistical conclusions about all IPOs generally and the following groups: Consumer Cyclical, Financial, Healthcare, Technology. Other sectors do not contain enough observations for that.

 

Short-term and mid-term return IPO statistics

In the tables below, the results are presented for 4 terms:

  1. 1 trading day after an IPO date;
  2. 2 trading days after an IPO date;
  3. 10 trading days (2 weeks) after an IPO date;
  4. 70 trading days (roughly 3.5 months) after an IPO date.

 The average returns on offer price

2014 - 2020
Sector		 Average 1-day return Average 2-day return Average 10-day return Average 70-day return
All Sectors 9% 9% 12% 17%
Consumer Cycl. 11% 11% 25% 15%
Financial 5% 5% 8% 10%
Healthcare 12% 12% 15% 19%
Technology 12% 11% 12% 25%
2019 - 2020
Sector		 Average 1-day return Average 2-day return Average 10-day return Average 70-day return
All Sectors 23% 23% 27% 28%
Consumer Cycl. 22% 23% 47% 11%
Financial 11% 11% 14% 12%
Healthcare 28% 28% 29% 37%
Technology 33% 33% 29% 31%

 

 

I 

Obviously, average values do not carry a lot of information, but they show the result if an investor invested the same amount in all IPOs during the presented periods. Also, averages can be used for a rough (but pictorial) comparison of different sectors.

Compared to the averages, the median values and, especially, distributions give significantly more info about the IPO and post-IPO data — this data is presented below.

 

 

 The median returns on offer price

In the tables below, the median values for Close of the day and for Minimum of the day are presented:

2014 - 2020
Sector		 Median 1-day return Median 2-day return Median 10-day return Median 70-day return
Close Min Close Min Close Min Close Min
All Sectors 0% -3% 0% -4% 3% -7% 8% -14%
Consumer Cycl. 0% -3% 0% -3% 3% -5% 15% -12%
Financial 0% -2% 0% -2% 2% -2% 7% -5%
Healthcare 0% -3% 0% -5% 4% -10% 9% -18%
Technology 0% -3% 0% -5% 6% -10% 12% -18%
2019 - 2020
Sector		 Median 1-day return Median 2-day return Median 10-day return Median 70-day return
Close Min Close Min Close Min Close Min
All Sectors 9% 2% 2% 1% 14% -1% 18% -7%
Consumer Cycl. 10% 4% 14% -1% 28% -2% -2% -21%
Financial 2% 0% 0% 0% 4% 0% 3% -1%
Healthcare 17% 4% 4% 3% 18% 0% 27% -10%
Technology 26% 4% 4% 3% 15% 0% 21% -10%

 

Looking at 2014-2020 data, we can see an intuitively fair no-free-lunch situation:

  • by buying stocks at a random IPO, an investor has a 50% chance to gain some profit;
  • initial IPO price, in general, tends to be "fair" and the market assesses it as fair.

However, the landscape for the last 2 years, 2019-2020, differs dramatically:

  • the chance to win for an investor was much better than 50/50;
  • enormous growth (especially on the first trading day), the numbers are significantly higher than could be expected based on previous data.

Distribution of IPO returns


 The 2019-2020 IPO return distribution has the apex shifted to the higher returns and also havier right tail. And these shifts are more clear for short terms, 1-10 days after IPO.

 

 

Instead of conclusion

The visual materials and numbers presented above can be pretty useful for making investment decisions and building data-based expectations. However, an important takeaway is the demonstrated fact that there is a blatant and strong deviation of IPO price behaviour between the "normal" state and the 2019-2020 "IPO-hype" period. Hence, it is rational to expect that without extraordinary liquidity, which has been injecting into the market during the last couple of years, the IPO investor's results will be less shining. 

 

Useful pages with IPO analysis (updating)

 

 

 Ivan Samkov, 2021