Eyeing the Rush: Why So Many Companies Are Going Public

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Jul. 29 2021, Published 11:39 a.m. ET

It's already Thursday, but the week of IPOs is far from over. For U.S. investors, we're still expecting another 22 fresh listings now through the end of the week. This comes after 10 IPOs that the market has already completed this week.

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Some of the IPOs are popular brand names like Duolingo, Dole, and Robinhood. Others are quieter types, but that isn't stopping them from dragging their operation into the public eye.

This week's IPO lineup is nuts, and it isn't stopping anytime soon.

On July 28, Duolingo went public under the ticker symbol "DUOL," and the stock popped up to $141 per share after an initial estimate of just $85.95.

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Cytek Biosciences Inc. (NASDAQ:CTKB) also hit the market recently and gained 16.76 percent within its first week of trading.

Many IPOs haven't been so lucky, like Candel Therapeutics (NASDAQ:CADL), which is down 13.88 percent from open. MeridianLink (NYSE:MLNK) is down 5.38 percent.

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Looking ahead, Robinhood is hitting the market as we speak in a rather unusual but highly publicized IPO under the ticker "HOOD." The company is reserving a large chunk of shares for its own consumers, and there isn't a lockup period for insiders. No lockup period could be good or bad for the stock depending on investors' intentions behind the scenes.

Are companies going public for the right reasons?

Historically, companies tend to go public for a few key reasons:

  • To raise capital (in this case, you'll want to know what the company plans to use the money for)

  • To gain publicity

  • To build standing for better institutional deals down the line

  • To give early investors an opportunity to tap out through the back door while retail investors come in through the front

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In many cases, expansion and research funding is a transparent way to go public as long as the company has its wits about it. However, going public isn't right for all companies all the time. In some IPOs, retail investors might be getting a raw deal, while the market mints new millionaires (at the least).

Right now, there's also the rush of retail investors who have swarmed the market, a fact that many companies might feel like they want to take advantage of. However, success in the market isn't guaranteed no matter how saturated the pool is.

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Why so many recent IPOs are faltering

Not all IPOs come in the traditional form. Many are occurring via direct listings or deals with SPACs. This works out for retail investors in some cases, but these alternative routes to the public market often leave new investors with the short stick.

Also, overvaluation is a common issue in the modern IPO era. An overvalued IPO occurs when a company goes public at a higher value than the market demands, which causes the stock to fall hard and fast. Long-term success is also a different story than a sudden pop.

IPOs have always been considered a riskier and more volatile investment, especially compared to stocks that have had time to stabilize on the market. Frankly, the increased rate of IPOs has caused more to fail, with more everyday investors being left wondering whether to hold on or let go.

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