Top IPO Scholar on Unprecedented IPO Wave & Why IPOs Underperform the Market | Jay Ritter
Episode publishedPodcast: Monetary Matters with Jack Far...Monetary Matters with Jack Farley
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Six is unique. Three companies with the largest IPOs in the history of the world, the total proceeds being raised are big. Although as a percentage of US market cap, in the same ballpark as during '99 and 02/2021. There are very good reasons to be really excited about AI. But what's the right price? There haven't been all that many companies with significant revenue and really high price to sales ratios. But on average, they have underperformed. And I've got that concern about SpaceX. A lot of money has flowed into venture capital and private equity. Prices have gotten bid up. When you buy hig
Welcome to Other People's Money. I'm Max Wheatley, and I'm joined today by Jay Ritter, director of the IPO initiative at the University of Florida's Warrington College of Business. Jay, thank you so much for joining the show today. My pleasure. People call you mister IPO, and we are in the midst of what feels like a historic run of IPOs with the potential for three IPOs of trillion plus dollar valuation companies. Of course, we in the media love to talk about these big nominal numbers, but there's many ways you can slice it. You can look at it relative to the overall market cap, the total issu
It is historic, even after adjusting for inflation In nominal terms, until this month, the world's largest IPO had been that of Saudi Aramco in 2019, raising about $29,000,000,000 In inflation adjusted terms, the biggest IPO ever was actually back in 1987 when Japan privatized NTT, Nippon Telegraph and Telephone, the government owned telecom company. In inflation adjusted terms, that was about a $45,000,000,000 deal. And and so the SpaceX IPO was approximately twice as big. So that definitely, whether nominal or inflation adjusted, blows away the previous records. And if it wasn't for SpaceX,
So Japan, 1987. I know the market the Nikkei peaked in 1989 and entered a very long bear market. We just, actually, in the last few years, crossed back over that peak from 1989 in the Nikkei. When you look out at the market environment, so many people are questioning whether, these types of big IPOs tend to signal market tops. Do they tend to mark market turning points?
Yes. And like most market predictors, you know, there's about 51% accuracy for for the predictions. So, you know, lots has been written and deservedly so about how the valuations of U. S. Equity markets, my preferred measure is the Schiller CAPE ratio, are at very lofty levels. But in 1996, when, Bob Schiller, made his famous irrational exuberance comment, which, was presented, at a Federal Reserve Board meeting and a couple of days later, Alan Greenspan used the same term. That was late nineteen ninety six, more than three years before The U. S. Market peaked at a much higher level. So, as wi
I guess another question people have is, are these valuations fair? So you've done a lot of looking at how IPOs are valued. I think maybe we should just get into how IPOs come together, how the price is determined normally, and then we can look at this new wave of IPOs.
On average, IPOs underperform after a first day jump during the next three years or so. But that's an equally weighted average. The evidence is that bigger companies, and my preferred measure is inflation adjusted sales, companies that go public where they've got annual revenue of at least $100,000,000, on average, they don't underperform. Institutional investors are dominating those IPOs. And typically, they're valuing the company relative to other similar companies. And on average, they get it right. Now, obviously, some companies are going to underp
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