Use Your Computer to Make Informed Decisions in Stock Trading: Practical Introduction — Part 7: Comparing IPOs from late 2020 vs. early 2021
There were 480 initial public offerings (IPOs) in 2020, according to the IPO Statistics (article link) — this was the best in the last 20 years. The second best year was 2000, when 397 IPOs were made.
2021 started even better: 118 and 132 IPOs in January and February. If the pace continues, the market could reach around 1500 IPOs by the end of 2021.
We looked at the aggregated numbers in order to extract any similarities or differences between the years.
The first two months of 2021 have seen many initial public offerings (IPOs). Average IPO size, price, and percentage change(vs. pre-IPO price) are similar, but individual examples have a different dynamic. In 2021 the number of negative growth IPOs increased from 50% to 75%. Financial and Industrial sectors are gaining more weight (increased to 10% share of the total Realised amount each). The NASDAQ share of the amount raised has grown from 53% to 71%. The smallest IPOs in volume and price are enjoying positive returns in 2021, while the larger deals are experiencing negative returns. However, in 2020, the opposite was true : the largest deals almost always started to grow quickly.
Summary of Results
01. Mean values are the same : the mean values for Realised offer amount, stock price before and after IPO, and Change in % are similar for both periods.
02. Profitability is falling: while the vast majority of new IPOs have worse profitability, the best outliers can grow faster in 2021.
03. Financial and Industrial sectors are expanding: the majority of the deals are still coming from Technology and Healthcare, but Financials and Industrials are expanding their presence in 2021.
04. NASDAQ and NYSE both decline in average returns, NASDAQ is more resistant: NASDAQ and NYSE both see declining returns when adjusted (S&P 500 returns deducted). The NYSE adj. returns have a drastic decline from +34% to -18%, while the NASDAQ aggregated returns do not change much (from +3% in 2020 to -3% in 2021).
05. NASDAQ IPO share of Realised amount increases from 53% to 71% : it is likely that stable returns are the reason for the growth of the NASDAQ — the absolute figure increased from $21m (53% share in 2020) to $28m (71% share in 2021).
06. Initial IPO price is lower on NASDAQ: the NASDAQ has typically lower IPO prices in 2021. Thus, average Tech IPO is priced at $41 on NASDAQ compared to $78 on NYSE. Nevertheless it attracts many Tech companies to do the listing.
07. The smallest volume IPOs are positive in returns: on average, the smallest volume IPOs are getting positive returns in 2021 and large deals are negative. However, in 2020, it was the other way around.
08. IPOs priced at $4-$6 and $20-$21 have positive returns: the IPO price intervals of $4-$6 (the lowest) and $20-$21 are the only ones that show positive adjusted returns of 20%-40% in 2021.
09. More IPOs have negative returns: in 2020, 50% of IPOs had adjusted price increases (positive return) and 50% had adjusted price decreases, but in 2021 around 75% of IPOs show negative adjusted returns
The Visual Story
The best place to start is to look at aggregated statistics. Most of the numbers are close, but some new trends can be observed.
- It seems that mean numbers for the Realized offer amount, stock price before and after IPO (Priced and Last Price), Change (in %) are similar for both periods
- A 25% quantile for Realized offer amount in 2021 is $47m, whereas it was $87m in 2020 — so the new deal size tends to shrink almost twice;
- In the 50% quantile, the offer amount is 10% lower ($153m in 2021 vs. $175m in 2020), and the Change is just 15% now compared to 37% before;
- 75% quantile has the same results as for 50%: 15% smaller Realized offer amount, and 48% vs. 84% price Change;
- The best IPO in 2021 has a price increase of 13.6x, while the best IPO in 2020 had about 2.7x. There is a possibility to see more outliers in the dataset.
All IPO deals are categorised by a few verticals: Healthcare, Technology, Financials, Industrials, Consumer Discretionary, Materials, Communications, Consumer Staples, Energy.
- The largest number of IPOs occurred in Technology (58% volume share in 2020, 30 deals → 47% volume share in 2021, 23 deals) and Healthcare (26% volume share in 2020, 43 deals → 23% volume share in 2021, 40 deals).
- A greater amount of deals took place in the Financials (3% volume in 2020, 4 deals -> 11% volume in 2021, 11 deals) and Industrials (3% volume in 2020, 4 deals -> 9% volume in 2021, 7 deals).
To recall the metrics definition from the previous Part6 “Boom of IPOs in 2020”:
Adjusted price change = [Stock close price last day]- [Stock close price first day]-[S&P500 growth], where S&P500 is a proxy for a market growth.
- NASDAQ volume ($21m) used to be close to NYSE volume ($18m), but in March 2021 it is more biased in favour of NASDAQ ($27m) than NYSE ($11m);
- Adj. Returns on NYSE were green and positive (34%) in 2020, much higher than those on the NASDAQ (3%). In 2021, NYSE average (volume-weighted) adjusted returns are negative (-18%), while NASDAQ returns are slightly negative (-3%);
Size of an IPO Deal and Initial Price
This sunburst chart displays hierarchical data (Exchange -> Sector -> Ticker (IPO)) showing the size of a deal (area) and the initial IPO price (colour).
- The average IPO price on NASDAQ ($29 in 2020, $31 in 2021) is steady, and almost much higher on NYSE ($50 in 2020, $55 in 2021). The initial IPO prices have increased by 10%.
- The increase in NYSE IPO prices is driven by Technology-related deals ($63 in 2020, $78 in 2021)
- On the NASDAQ, the technology sector has lower prices $41, but its absolute volume has increased 1.5x (from $8m to $13m) because of many new large IPOs (CERT, OZON, WISH, XM, PLTK, BMBL)
Adjusted Returns by Amount IPO bin
All deals are divided into 10 bins with around ten IPOs in each one. The boundaries for 2020 and 2021 may differ, but the idea remains the same — around ten deals in each bin.
- The overall level of returns was much higher in 2020, so many bars on the first graph (December 2020) show significant positive values (10%-40% rise less than 3 months after the IPO, which is a lot).
- In 2021, the smallest deals ($2.7m to $22m) are the ones with the highest returns (24%)
- As of 2021, the mid-sized deals ($166 to $300) exhibit moderate returns (6% and 13% for 2 bins).
Adjusted Returns by Initial Price bin
These bar charts use the same concept for binning the deals and for showing the adjusted returns, but for the initial price instead of the actual volume.
- 2021 initial price bar chart is consistent with the 2021 realised amount bar chart: the most profitable are the smallest bin ($4-$6), and the mid-range standard price bin ($20-$21)
Box plot: Adjusted returns
In the box plot (whisky plot), we see the quartiles adj. returns (min, 25%, 50%, 75%, and maximum) and the existence of outliers (points at the top).
- In 2020, low-quartile losses were smaller (-59% min to -12%) than in 2021 (-69% min to -28%);
- The median IPO in 2020 could earn 0%, while the median IPO in 2021 could earn -11%;
- In 2020, the third quartile (50%-75%), could make 0% to 28% returns, but by 2021, the upper limit is only 0%.
- There were many outliers with growth rates of 2x-3x (adj. returns between 100% and 200%), while 2021 had only one outlier with growth rate of 5x and several more with 1.5x-2x growth
Box plot: Adjusted returns by vertical
As we continue to analyse the box plots, we begin to examine sectors.
- Many small healthcare deals were highly profitable in the end of 2020, with 39% in the 3rd quartile, and 2.3x growth for one outlier. 75% of healthcare IPOs in 2021 will show a negative adjusted return dynamics, with more outliers showing 50%-100% growth.
- The technology sector also experiences lower returns in 2021, but still sees some outliers with return rates of 50%-100%.
- Growing number of IPOs in the financial sector in 2021 are down 3% for median IPOs, but 53% for the top quartile, and insane 4.5x adj. returns for one outlier (TIRX).
Recent big IPOs examples
We have plotted the cumulative growth rates for some deals for the year 2021.
We’ve shown how to scrape the financial predictions from a website and how to connect them together with the stock returns. Q2'20 seems to be a very successful quarter for the top 50 (on the volume trade) stocks — most of them showing the positive surprise over the expected earnings-per-share (EPS) and high short-term returns. The result remains strong even after the corresponding S&P500 index returns are deducted (i.e. the top 50 stocks had higher positive growth than average index dynamics). When scaled to top-200 stocks — the result is not that simple — the average returns are smaller, and there is more variation in EPS and the returns.