The Cyclicality of the IPO Market

With the 10%+ market correction occurring in the past week, the IPO market has grown cold. With fewer IPO filings and zero upcoming IPOs (meaning companies that have set the price range and date of their planned IPO), interest in IPOs has been waning throughout this market turmoil. Whenever a market correction occurs, IPOs are always some of the first stocks to take a hit, as investors lose interest in the high risk nature of investing in such firms. The most recent case of this phenomenon was during the last week of March 2014 into April 2014. During the first few months of 2014, IPOs in the biotech and technology (specifically cloud-based SaaS) experienced huge first day run-ups (firms include RARE, DRNA, CSLT, VRNS, COUP, PCTY, QTWO, AMBR, BRDR), but then most of their prices were cut in half over the next few months after the technology sector experienced a correction. The difference with the market correction occurring right now is that the whole market is being affected, as it is not limited to solely one sector. But with previous market corrections (keep in mind I’m talking about market corrections, not necessarily huge collapses, à la the Dotcom Bubble collapse in 2000 and the Housing Bubble collapse in 2008) IPOs usually heat up within 4-5 months. As for the 2014 correction, IPOs returned in droves by September, with strong showings from Hubspot, Alibaba, CyberArk, New Relic, Yodlee, Hortonworks, and Workiva. I believe that IPOs should be back by this fall/winter, as the market rebounds. Bob McCooey, Senior Vice President of Listing Services at the Nasdaq, stated that “it should be a very busy fall.”

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