IPO Price Increases Give Way to Declines, QSBS Investors Must Stay Alert


Companies joining the New York Stock Exchange or Nasdaq at the beginning of 2021 enjoyed dramatic increases in share prices, but this trend is now on the decline. Since the first quarter of the year ended, even companies whose initial public offering (IPO) debuted at a high price have already seen significant dips. 

The year of 2021 rang in with a high level of IPO enthusiasm. This was on the heels of some impressive price jumps by companies whose shares debuted in December 2020. For example, Airbnb saw an increase of 113 percent on its opening day, and DoorDash saw an equally respectable 86 percent jump. This momentum continued into January and February of 2021 as the average company saw an increase of 40 percent from their IPO price on the company’s first day of trading. 

However, March and April of 2021 were not as profitable, and the average increase came in at about 20 percent. As of mid-May, the average had fallen to about 18 percent. This data does not include special purpose acquisition companies (SPACs), which have been an exception to the rule this year. 

Most companies debuting now are still seeing an increase from their IPO price, with some notable exceptions. Waterdrop, a Chinese insurance technology company, fell 19 percent on their opening day. Vaccitech, who owns the technology behind the Oxford/AstraZeneca coronavirus vaccine, fell 17 percent. Yet not every company has experienced this slump. Figs,  a company that manufactures hospital scrubs, saw a 36 percent increase during its first day of trading and an additional 14 percent on its second day. 

Overall, the second quarter of 2021 has shown about 11 percent of companies exceeding their initial pricing, whereas 13 percent are pricing below expectations. In 2021, new IPOs (not including SPACs) raised $42 billion in the first quarter—the highest number recorded during the pandemic. Comparatively, $18 billion was raised in April and May. 

As the world looks forward to a post-pandemic era and the market recalibrates, would-be investors must stay informed on these trends and look for opportunities. Those seeking to invest in qualified small business stock (QSBS) in the private markets can use this time to investigate implications of potential tax savings from recent public market IPOs, and review current QSBS requirements to ensure that companies they invest in now will qualify for tax benefits when these companies become the next to IPO.

This article does not constitute legal or tax advice. Please consult with your legal or tax advisor with respect to your particular circumstance.

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