In shifts of the economic landscape, Initial Public Offerings (IPOs) are increasingly losing their allure.
In shifts of the economic landscape, Initial Public Offerings (IPOs) are increasingly losing their allure.
Chime's announcement of filing paperwork for a potential 20225 public offering has sparked discussions: could this be the moment when the IPO dam breaks wide open?
ServiceTitan's successful IPO has ignited curiosity, with everyone asking, "Who's next?"
Klarna and ticketing giant StubHub are among the top contenders. Rumors suggest that Stripe and Revolut might jump into the game too. However, some argue that the 2025 IPO bull market might be overexaggerated. Let me explain why.
Sensational beginnings don't guarantee everlasting fame
A stroll through recent history uncovers the remnants of companies whose shares never reclaimed their IPO heights. Groupon has lost a whopping 99% of its value since debuting with a near-USD 18 billion market cap. At the time, it was the biggest IPO for a US web company since Google. Gaming company Zynga's shares plummeted 70% within a year of its December 2011 IPO, priced at USD 10. Over a decade later, the company's share price remains stubbornly below USD 10.
ServiceTitan's IPO success, or lack thereof, may serve as a barometer for other tech companies considering going public. A downturn in its stock price could chill the fervor, making founders and boards wary of entering rocky public markets. Combined with prevailing economic uncertainties and surging interest rates, many late-stage private companies may decide that staying private is the more prudent move for now. Some still bear the scars of past IPO mistakes more bitterly than the appeal of going public.
Many companies are still struggling with profitability
Be aware of sky-high valuations in the tech sector. Many of these hyped businesses are far from turning a profit. Since private companies have no obligation to adhere to the same accounting standards as public ones, reliable financial data can be elusive.
Fresh off the investment spree in the 2020–2022 boom years, many startups opted for explosive growth instead of effective cash management. As growth has slowed, investors have reconsidered their risk assessments. Today's early-stage founders face more rigorous scrutiny regarding financial health and efficient go-to-market strategies.
Amazon took nearly 7 years to post its first profit following its IPO. Balancing short-term growth against long-term profitability is a delicate dance that challenges even the most skilled leaders. As companies strengthen their financial discipline and impose financial controls, it's likely to imply a more gradual entry of firms into the IPO marketplace.
The private markets landscape has undergone a significant transformation
Perhaps the main reason why Chime's upcoming IPO won't trigger a public offering floodgate is that the environment has fundamentally shifted. Public listings are no longer the ultimate destination for entrepreneurs. Several have grown accustomed to thriving in the private markets. Secondary marketplaces like Forge and the rising tide of ESOP technology solutions make it easier and cheaper for private company employees to access liquidity. No longer is a ticker symbol the representation of success.
Journalist Craig Coben emphasized this point in a recent conversation with the Financial Times, “These are significant trends. These are gigantic trends. The growth of the private markets is a gigantic trend that has been in progress for several decades. It was particularly accelerated following the financial crisis. Now, for many companies, they find that they reap better value by selling themselves privately than by listing on the stock exchange.”
Publicly traded companies are subject to tighter regulation and scrutiny than their private counterparts. To keep up, leadership teams must concentrate on managing the whims and expectations of both institutional and retail investors. This shift is certainly not simple. Many times, the teams that lead companies to successful public listings are not adept at handling the complex relationship with equity research analysts. IPOs necessitate changes in human capital and operational strategy alike. CEOs who have guided private companies successfully for the better part of a decade might wonder, why change what's working?
The IPO floodgates aren't just held back by market conditions; they're restrained by a fundamental shift in how companies define success. With ample liquidity options in the private markets and the daunting reality of public scrutiny, many founders and boards are re-evaluating the need for a public listing. Chime's IPO may generate excitement, but it's unlikely to ignite an all-out rebirth. Instead, the journey to 2025 is likely to be characterized by selective, calculated entries—demonstrating that in today's marketplace, timing isn't everything; strategy is.
Fintech companies, watching Chime's potential IPO, are considering their own money-making strategies. For example, Stripe and Revolut might decide to join the public market, given the interest in fintech companies.
Despite the buzz around Chime's potential IPO, some fintech companies are wondering if the 2025 IPO bull market might not be as promising as it seems. Groupon and Zynga's post-IPO struggles serve as reminders that sensational beginnings do not guarantee everlasting fame in the world of public finance.