This year’s initial public offerings of Lyft, Uber and Pinterest were met with much fanfare. And while the first six months of 2019 has been banner for new issues, the performance results have been a mixed bag.
Since debuting, Lyft lost 14 percent, Uber was a smidge in the red and Pinterest was up 36 percent as of Thursday’s trading versus their respective IPO prices. This is a far cry from the go-go years when IPOs would skyrocket 50 percent or more within a few days of being hatched. What happened?
The death of IPOs was predicted in a 2014 interview with Marc Andreessen by Vox. As the co-founder of Netscape and now a venture capitalist, Andreessen has a keen handle on the IPO market.
From his perspective, Andreessen sees two big problems: First, growth companies are going public at a much later stage of their development. For example, Microsoft had a market size of just under $1 billion when it debuted in the 1980s. By contrast, Facebook had a $80 billion market size when it launched in 2012. The latter case exemplifies today’s IPO marketplace where capital gains from growth companies have accrued to private investors rather than public investors.
Today, the backlog of privately held technology ventures worth $1 billion or more has surged to 97 companies, according to PitchBook.
The second problem is that fewer companies are choosing the path of becoming publicly traded entities. The huge expense and regulatory hurdles of going public have been a contributing factor to this trend. The end result has been a dearth of mid- and small-cap growth IPOs for investors to choose from.
Regardless of these ongoing obstacles, the number of IPOs has been on the upswing.
A total of 176 IPOs raised $48 billion in 2018. It was the second-most active year for IPOs during the past decade, according to research from William Blair. The healthcare and technology sectors dominated IPO listings, accounting for a combined 70 percent of all activity last year.
Financial advisors interested in owning newly launched public companies on behalf of their clients have some choices within the ETF market.
The First Trust U.S. Equity Opportunities ETF (FPX), which debuted in 2006, is the granddaddy of IPO-focused ETFs. The $1.1 billion fund holds the 100 largest U.S. firms with recent IPOs, weighted by market cap. Eligible stocks can be purchased within six days after their launch and can be held for a maximum period of four years. FPX’s weighted average market cap is a voluptuous $46 billion.