2019 – another good year for IPOs?

2018 has been a good period for new listings, although recent volatility has put others off. While the easy days are behind us, sensibly priced issues are still likely to be popular.

Source: Bloomberg

Recent market volatility has seen several initial public offerings (IPOs) suffer poor performance, while others have been pulled due to concerns about an unfavourable reception. But 2019 still looks to promise great things for new public listings.

Data from PwC shows that we have seen 173 IPOs this year to the end of September, raising over $40 billion. That is almost 50% up on the previous year. But 2019 could be even better, if Uber and Lyft, two taxi companies battling it out for global domination of the ride hailing market, decide finally to go public.

While Uber is planning on an IPO that could value it up to $120 billion, Lyft is aiming for a more modest $15 billion. Meanwhile, data mining firm Palantir is the other big candidate for a public listing, although this is likely to be towards the end of the year, according to CNBC.

Arguably, the recent volatility in equities and a more clouded global outlook, plus the long retreat from the era of easy money, could actually prove healthier for the IPO market, and equity markets in general.

Recent arrivals, of which Blue Apron and Snap are perhaps some of the most obvious examples, have not performed well. Blue Apron has lost almost 90% of its valuation since it went public, while Snap has declined by over 70%. These companies attempted to go public at the tail end of the easy money boom. Investors, faced with a likely rise in interest rates and bond yields, have become more discerning in their choices.

Now, instead of having to chase racy tech companies at elevated valuations, they will start to put more money to work in previously uninspiring bond markets. These might not have the appeal of an IPO, but the steady income is an undeniable attraction. Markets are a game of relative attractiveness, and bonds just got a bit more compelling. This has been enough to quell some of the previously rampant enthusiasm for new firms.

But if this means IPOs will now be on offer at lower valuations, then so much the better. This will help put off concerns of a new dotcom bubble. This fear has cropped up regularly in the past few years, but so far these concerns are unfounded. Yes, some companies got away with IPOs that probably did merit the use of the term ‘it’s probably overpriced’ to explain what IPO stands for. Twitter is a classic example. But others deserved their success.

In a world of steadily rising rates, IPOs will not be the be all and end all of investment. But good companies, attractively priced, will still command attention and deserve some of the enthusiasm showered on them. Like the stock market more generally, it is no longer possible merely to buy any issue in the expectation it will rise eventually. But 2019 will still see some big names come to market, calming fears of an end to new issues.

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