As the IPO market in the United States regains momentum in 2024, investors are showing renewed interest in new publicly traded companies, driven by robust returns and improved economic conditions. From January through June, 80 new IPOs raised $17.8 billion, reflecting a significant increase in both the number of IPOs and the amount of proceeds. This resurgence presents a mix of opportunities and challenges for businesses and investors alike.

Key Trends in the 2024 IPO Market

According to EY's Global IPO Trends Q2 2024 report, the U.S. IPO market experienced a 27% increase in new IPOs and a 75% rise in proceeds year-over-year. The median net profit margin of IPO companies improved to 3% in the first half of 2024, compared to -5% in 2023. Notably, private equity and venture capital-backed IPO proceeds surged by 74% in the U.S.

Several companies have made notable entries into the public market, including:

• Astera Labs Inc. (ALAB)
• Reddit Inc. (RDDT)
• Ibotta Inc. (IBTA)
• StubHub
• Stripe
• Shein
• Skims

These IPOs have demonstrated strong initial performance, with an average "day one" trading price increase of 16.3% and a cumulative rise of 23.9% from the IPO through June 17.

Economic and Market Factors

Despite the positive trends, global IPO activity fell by 12% during the same period, with valuations down 16%. This contrast is largely attributed to better economic and market conditions in the U.S. compared to other regions. EY's global IPO leader, George Chan, highlights a "new pendulum of opportunity" in the U.S., driven by favorable economic prospects.

However, sustained high borrowing costs and the uncertainty surrounding the upcoming U.S. presidential election could impact IPO momentum in the latter half of 2024. Julia Khandoshko, CEO of financial services firm MindMoney, notes that high interest rates make capital expensive, favoring large-cap companies over new IPOs. Nonetheless, there is optimism that a potential rate cut by the Federal Reserve could reignite IPO activity.

Recent and Upcoming IPOs to Watch

Several recent and upcoming IPOs are generating significant interest:

• Astera Labs Inc. (ALAB): With an IPO valuation of $5.5 billion, Astera Labs focuses on connectivity solutions for AI and cloud infrastructure. Despite initial volatility, the company shows strong financials and growth potential.
• Reddit Inc. (RDDT): Valued at $6.5 billion, Reddit has seen a 56.4% increase in its share price since going public. Partnerships with OpenAI and Google enhance its market position.
• Ibotta Inc. (IBTA): This cash-back rewards service provider went public with a $3 billion valuation. Despite a recent share price decline, Ibotta's pivot to a B2B model has driven significant revenue growth.
• StubHub: Expected to go public with a valuation of $16.5 billion, StubHub's strong profitability and established market presence make it a compelling IPO candidate.
• Stripe: The fintech giant is poised for a $65 billion IPO. With robust financials and strong growth, Stripe is one of the most anticipated IPOs of 2024.
• Shein: Valued at $63 billion, Shein is preparing for a potential London Stock Exchange IPO. Its unique business model and global reach position it well for public market success.
• Skims: Founded by Kim Kardashian, Skims is eyeing a $4 billion IPO. Its strong sales growth and high-profile backing make it a company to watch.

Avoiding the FOMO Trap

Investors should avoid the fear of missing out (FOMO) when considering IPOs. It is crucial to evaluate how each IPO fits within the broader investment portfolio and aligns with long-term growth objectives. Key questions to ask include:

• Does the IPO offer exposure to an underrepresented sector in my portfolio?
• What allocation makes sense, and how does it fit within my overall asset allocation strategy?
• Does the investment diversify my broader portfolio?
• Can it drive growth-stock returns?

Additionally, be cautious of companies emphasizing AI to attract investor interest. While AI components can add value, ensure the business model is proven and sustainable.

Legal Considerations for IPOs

For companies considering an IPO, navigating the legal landscape is critical. Key legal considerations include:

• Regulatory Compliance: Ensure compliance with SEC regulations and disclosure requirements.
• Corporate Governance: Establish robust governance structures to meet public company standards.
• Intellectual Property: Secure IP rights to protect valuable assets and maintain competitive advantage.
• Contractual Obligations: Review and address any contractual obligations that could impact the IPO process.
• Litigation Risks: Identify and mitigate potential legal disputes that could affect the company's valuation and market perception.

For more detailed guidance on navigating the IPO process or for assistance with specific legal considerations, please contact our office. Our experienced attorneys are here to provide comprehensive support and ensure your IPO journey is successful.