This is setting up to be the biggest year for initial public offerings (IPOs) ever. Despite market turbulence and fears of the Omicron variant, the IPO market has had a sensational year, with several unicorns listings, such as the buy-now-pay-later (BNPL) giant Affirm; female-friendly dating platform Bumble; gaming startup Roblox; the zero-commission brokerage Robinhood; and the electric truck manufacturer Rivian. Yet, despite all the euphoria surrounding this year’s IPO market, a piece in CNN suggests that we may not see the same IPO market strength in 2022.
Markets Have Been Spooked
In the last few months, we have seen some shakiness in the IPO market and recent fears of the effects of the Omicron variant have triggered a tech selloff and general market volatility and led to companies such as Nu Holdings, reducing their initial share price offering in the run up to their IPOs. We have been here before, and eventually, markets seem to shake off these fears, though it has to be said that markets have tended to shake off these fears because people seem to convince themselves we are at the final stretch of the pandemic and “normal” is around the corner. Whether markets will engage in a similar level of optimism is something we will have to wait to see.
If the Federal Reserve carries on with its plan to pull back the support it gave markets to avert the risks from the pandemic, then we could have the conditions for IPO weakness in 2022. However, the Omicron variant may have shaken up the Fed and led them to reconsider how aggressively they will pull back.
Unicorns May Wait
Nu Holdings’ decision to cut its initial price range is a concrete example of how recent market volatility and economic conditions have already started to impact IPOs. Some unicorns, for instance, ByteDance, the biggest unicorn in the world and owner of social media platform TikTok, may forego listing in 2022 completely.
The number of global healthcare IPOs more than doubled year-over-year in the first quarter of the year, as the pandemic drove home the need to develop innovative vaccines, therapies and diagnostics. In the second quarter, global healthcare IPOs raised $2 billion more than in the first quarter. Many IPOs featured companies exploring the use of botox in innovative ways. Aeon Biopharma, for instance, is funding a botox therapeutics pipeline. The botox market is expected to grow at 9.8% compounded from 2021 to 2027, making it an important segment of the healthcare market and driving up demand for workers with Botox and filler training. The secular trends in healthcare suggest that market volatility today is just a bump in the road.
The Sino-American standoff, coupled with China’s crackdown on its tech companies, has already led to its IPO pipeline getting choked off in 2021. Whether it will reopen in 2022 is a huge question. Indications are that many Chinese startups will list in Hong Kong instead and that may include ByteDance. Losing access to unicorns from the second-largest economy in the world would be a huge blow to the US IPO pipeline.