The IPO market in 2016 has struggled just as badly this year as last year. Only seven companies have debuted so far, the lowest amount since 2009. Companies have been scared off by a volatile stock market and by numerous weak performances from IPOs last year.
But there are indications that the IPO market is steadily recovering. And if that is the case, investors needs to be ready to be the first to jump on any companies which may break this IPO drought and start looking for investors.
Reasons for Optimism
While investors have every right to be extremely cautious about IPOs right now, some point to this drought being nearly over.
First, the S&P 500 has recovered and the stock has steadily increased over the past month. And positive economic news like the February jobs report can restore confidence to the economy and stock market, creating a better environment for IPOs.
It should also be noted that the Renaissance Capital IPO ETF is up 18% over the past month. Both of these are encouraging market signs for more IPOs to develop.
On the technology side, the recent financials reports released by Square Inc. and Box are encouraging. Both companies exceeded revenue expectations, with Square reporting a 49% increase in sales compared to the year-ago quarter.
This is important because no tech companies have debuted since Square and Match.com did in November. While Square's stock price of $14.50 or so is higher than its IPO price, it has fallen compared to its first day trading value. Square and Box, in addition to tech companies, have had difficulties convincing investors that their technological contraptions can actually lead to revenue and profits. While these revelations are not wholly positive (Square ended up losing more money compared to that year-ago quarter), the fact that tech companies show they can earn revenue should be an encouraging sign for other tech companies to join in.