Why the Day One IPO ‘Pop’ Is Overhyped
The current class of 2020 IPOs make a strong case for more direct listings
After a delayed start, the IPO market is heating up again as companies look to resume going public. This recent spate of IPOs — Agora, Vroom, ZoomInfo, and Lemonade — has resurfaced the familiar occurrence of the “IPO pop,” where companies’ initial share prices see large increases relative to their original IPO price on the first day of trading. The recent class of 2020 IPOs has seen its stock price go up, sometimes by multiples, in the first few days of trading.
This pop is often billed as a positive trend and a marker of a successful public debut because of the jump in shares, which increases the company’s overall market cap value. But these IPO pops can actually shortchange companies of capital and result in dilution, reducing each share’s intrinsic value. Here’s what the IPO process looks like and what the 2020 data of the current round of IPOs tells us about whether these pops are in fact a net positive for the company or more of an overhyped trend.
The IPO process at a glance
Companies choose to go public for a multitude of reasons, including:
- raising capital (though this is arguably a less important factor for companies that can…
