Investing

What Is Going on With IPOs Right Now?

Austin Smith

Published: April 4, 2024 5:52 pm

Last Updated: April 5, 2024 6:56 pm

In today’s episode of the 24/7 Wall St. podcast Lee Jackson and Doug McInytyre discuss the thawing of the IPO market. With Reddit (NYSE: RDDT), Birkenstock (NYSE:BIRK), and Astera Labs (Nasdaq: ALAB) going public, and Trump Media & Technology Group (NYSE: DJT) de-SPACing it appears the boom times may be back. But, there has been so much early volatility in these stocks, with big pops, drops, and recoveries for all of them that it’s hard to tell. If These first few IPOs don’t perform well consistently, it may put a chill back on the market for new companies and close the doors to new IPOs for awhile. And with the upcoming US presidential election just around the corner, it’s anyone guess what the markets will do.

Transcript:

This is Doug McIntyre, the editor-in-chief at 24-7 Wall Street, and I’m with Lee Jackson, who is our premier editor for finance, the economy, public company stocks.
We’re going to have a conversation about IPOs today.
After what was really a tough 18 months for IPOs, we’re starting to see some green shoots or whatever they’re called when they come up in your yard.
What are you seeing now?
What’s going on with IP?
It seems like it’s waking up a little.
It is waking up.
The problem that happened in 22 and 23 is there was just no deals.
And so people reluctantly started to come back this year.
But Estera Labs came out and that’s an AI-driven sort of deal.
And Reddit came out.
And of course, Reddit’s been around, you know, the front page of the Internet forever.
Well, it’s been around for like 20 years and it’s never made a penny.
But after a decent start, it skyrocketed higher.
And then people that do what’s called naked short selling came in and, you know, probably bled it back down to the highs from the very first day.
But that’s the kind of thing that gets an IPO market working.
And, you know, it’s been all but closed for two years.
I think one of the things you and I remember is some of the really frothy market IPOs.
And I’m not going back even to 1999, 2000.
I was a stockbroker then.
I loved them.
So what would happen is these things would pop double, even triple digits on the first day.
And then they would very often sell down quickly as people took profits.
Are you seeing as much of that now, or are the run-ups after the day of the IPO and the day after a little bit more sane?
Astera Labs, for instance, has hung in well.
It’s hung on some big gains.
Reddit, which we just mentioned, skyrocketed higher, but came back in because once again, they don’t make any money.
And I think I mean, I was there.
I was there from 96 through 2000 through deals that were just ridiculous.
And I saw one that was called theglobe.com.
You may remember this one.
I was working at Bear Stearns.
It priced at seven and the opening trade was 86.
And at that time it was the highest.
And of course, every client I had said sell.
And, you know, it came back and it was actually like theglobe.com was like a Facebook.
People could talk with each other, if you remember.
I was running a publicly held company called All Two Technologies.
It was a video compression software company.
Came out at two, moved to 12.
A year later, it was $1.10.
Right.
Well, the globe.com does not exist.
They did a secondary maybe six months after the original deal in the mid-50s, and it went to zero.
Yeah, exactly.
Is there a temptation right now in the capital markets to say, I’ve got to get my IPO out if I’m the investment bank?
Get it out now.
The market is running up.
You can’t count on the fact that that’s going to continue for another six months.
So are you going to see a rush of companies and their investment banks say, get on that roadshow, get it out now, don’t wait?
I really think so, because…
Number one, the queue was just jammed with deals that have been in there for 18, 24 months, like you mentioned earlier.
And now there’s good deals that are coming where they’re probably like, let’s get out as quick as we possibly can.
Because if we hit a really bad stretch or a really sharp correction, that’ll bring everything to a screeching halt.
One of the things, and Reddit is a good example of this, is you’re still in a market where an IPO does not have to be a company that’s making money.
There’s still temptation on the part.
Right.
It does help, but you’re still getting companies that come out.
They’re money losers.
They’re obviously raising money to stay around.
But what’s your view of that?
For people who are investing, they look at an IPO.
It’s losing money.
I mean, what should they look for?
Well, you know, there’s a million metrics that bankers use to say, you know, our cash flow is this or, you know, our enterprise value is this or that.
I guess the main thing is in, I think Birkenstock was a good example because it came out, you know, the hippie shoe sandal company came out last fall and it immediately by the third or fourth day was down $10.
And then, you know, so everybody was like, oh, wow, here we go again.
And it rallied back and actually went above the IPO price, but it took it a while.
So I think that you have to be very careful that if you’re going to go with somebody that’s either not making money or not making a lot of money, better make sure that product is in demand and will stay in demand.
Yeah.
Well, we will return to the IPO question in a few weeks.
Particularly, you’re going to have earnings.
All the big companies will be out by the time we talk about this next.
We will have seen a few more IPOs.
Yeah, we’ll report on them as well.
See how the market reacts to those.
And maybe just as importantly, you’ll see whether anything disrupts the economy.
It looks great right now, but you’ve got problems in the Middle East.
There are a bunch of things sort of lurking right around the corner.
Not to mention the election, Doug.
You could see a bunch of stuff drag the market down.
So, Lee, we’ll revisit this soon.
It’s good to see you.
Good to see you.f