This year’s IPO market got off to a roaring start. Now some fear it’s out of gas

Initial public offerings are finally making a comeback. After a period in which companies stopped going public altogether, IPOs began ticking up last year, and this year the number of offerings has already exceeded 2023 by 40%. What's more, this year’s IPOs have pulled in a combined valuation that is more than double last year’s offerings. This raises the question of whether the good times are set to continue and, if so, which companies are most likely to make their public debut in coming months.

For context, a total of 74 companies have gone public this year on U.S. exchanges using a traditional IPO and together raised nearly $17 billion, according to June 24 data from Dealogic.

IPO hits—and duds

Ordinarily, June and July are a busy time for new issues, but that doesn’t appear to be the case this year. Several companies have delayed their planned listings, including Golden Goose, the Italian luxury sneaker maker, that was slated to list on the Milan bourse. On U.S. exchanges, there were no IPOs last week because of the Juneteenth holiday, and only three companies, including Webtoon Entertainment, are slated for this week, said Matt Kennedy, senior IPO strategist at Renaissance Capital, a provider of pre-IPO research that manages two IPO-focused ETFs (NYSE: IPO, IPOS). “This was not the acceleration we expected a few months ago,” he said.

Earlier this year, the IPO market appeared to have found its footing. Several stocks soared in the IPO market, but the question was whether these new stocks could retain those gains. Some succeeded. In January, CG Oncology, a biotech, saw its shares nearly double from their $19 IPO price to $37.17 during their debut. Then, in the aftermarket, CG’s stock soared to a high of $47.93 in February but since has lost some momentum, closing Friday at $31.43. CG’s 96% pop is the best debut from an IPO this year, according to Dealogic.

There’s also Astera Labs, the semiconductor company that raised $712.8 million on March 19 after selling 19.8 million shares at $36. Astera’s stock rose 72% during its March debut and then clinched a closing high of $85.70 in April. Shares have since fallen some, ending Friday at $59.01. Astera Labs has a $9.2 billion market cap.

The biggest name in this year’s crop of IPOs was the social media site Reddit, which went public right after Astera in March, collecting $748 million after pricing at $34 a share. The stock jumped 48% during its first day and continued to rise, trading to a high of $66.41 later in March. Reddit’s stock has lost some ground since then, closing Friday at $57.30. The social media company is currently valued at about $9.4 billion.

Reddit was a major hit, but the recent crop of IPOs has also included some duds. Rubrik, the data management software maker backed by Microsoft, rose 16% during its debut but has since tumbled to $28.65 Friday, below its $32 IPO price.

There were also big hopes for Tempus, which uses artificial intelligence to process medical data. Earlier this month, Tempus rose 9% during its first day, but shares have since dropped below their $37 offer price, trading Friday at $28.64. (Waystar Holding, a health care payments company backed by private equity firms EQT, CPPIB, and Bain, dropped below its $21 offer price during its June 7 debut. But the stock has since rebounded and remained above its IPO price, ending Friday at $21.67. )

Nostalgia for 2021

The strong start this year suggested that the market had turned a page, and that investors were ready to lap up new listings. But that hope may have been premature.

“The IPO rally we saw earlier this year ran out of gas,” Kennedy, the Renaissance Capital analyst, said.

New issues are still feeling the “hangover” from 2021, when a record 396 companies listed their shares using an IPO, said Gabe Gelman, head of equity capital markets for the Americas at Goldman Sachs. Only 16.4% of the IPO Class of 2021 are trading above their offer price, according to Renaissance Capital. This means 84% are underwater. Investors are now scrutinizing deals much more closely, one person familiar with the situation said. “It's become a tougher sell internally to get people over the hump on some of things than it traditionally has,” they said.

Valuations of venture-backed companies also soared in 2021. That year, 128 companies were valued at or above $1 billion, making them unicorns. That has dropped, with nearly a third of those startups seeing their valuation fall to below $1 billion, Bloomberg reported in December citing a Forge Global report.

"Tech VCs seem to be patiently waiting for market multiples to come back or for businesses to grow into their valuations,” Gelman said.

There is still a valuation disconnect between companies going public and investors, Kennedy said. Goldman’s Gelman thinks the tide has changed with more IPOs getting done than in 2022 or 2023, but still behind historical volumes and well behind 2021.

The presidential election later this year will likely cause many companies to delay their offerings. Both Gelman and Kennedy are now looking toward 2025 when a more normalized IPO market may return, when multiple IPOs, driven by tech companies, price in any given week. There are about 191 companies that are in the pipeline to go public, although many likely won't end up listing. “A number of companies have pushed to 2025,” Kennedy said.

Here are some companies that could go public whenever the IPO market heats up:

· Databricks, the data and AI company, was valued at $43 billion in September 2023 when it raised $500 million in a Series I round. The company is believed to have more than $2 billion in cash, so it doesn’t need to go public.

· SeatGeek, the ticket seller, had tried to go public but terminated its SPAC deal in 2022. The company then filed confidentially for a traditional IPO in 2023, according to The Information. Morgan Stanley is leading the IPO, Bloomberg reported earlier this month.

· Klarna Bank, an AI-powered global payments network and shopping assistant, is also expected to go public. Klarna CEO Sebastian Siemiatkowski has talked about an IPO, but the company hasn’t chosen where and exactly when the deal will happen. Klarna has established a U.K.-registered holding company that will help smooth a path to a listing in New York next year, Sky News reported in May. “No destination or time has been set,” a Klarna spokesman said in an email.

·  Shein, the Chinese online fashion company, has confidentially filed to go public in the U.S. but is now considering listing in London, according to the Financial Times.

· Momenta, the Chinese self-driving company that is backed by GM, has also filed confidentially to go public in the U.S. Last week, China's securities regulator approved the IPO in the U.S., Reuters said.

This story was originally featured on Fortune.com