Market Extra: Wall Street banks post record $10 billion in IPO revenues even as average investors in 2021 face worst returns in years
The best of times and the worst: It was the tale of two IPO markets this year on Wall Street.
Investment banks booked a record tally in revenue from initial public offerings in 2021, despite IPO performance that was the worst in at least three years for average investors, by one measure.
Underwriters, including Goldman Sachs Group Inc. GS, -0.36%, JPMorgan Chase JPM, +0.25% and Morgan Stanley MS, -1.24%, among others, combined to register IPO revenue of about $9.8 billion, including special-purpose acquisition companies, or SPACs, according to data compiled by Dealogic for MarketWatch. The IPO revenue total compares with $4.995 billion from 2020, $2.1 billion in 2019 and $1.95 billion in 2018.
Even excluding revenue generated from SPACs, which have been one of the most popular ways for investors to take companies public in the past year or so, bankers accumulated a record fee sum. More traditional listings on public exchanges saw banks combine to post revenue of about $5.531 billion so far this year, with no other year coming close, including the dot-com era, when total IPO fee revenue for 1999 and 2000 were a combined $6 billion, using data going back to 1995.
Goldman booked the highest total in IPO fees, including SPACS, with some $1.456 billion in 2021, doubling its 2020 tally of $758 million. In fact, three banks made over $1 billion in fees, with JPMorgan booking $1.1 billion and Morgan Stanley seeing 2021 revenue of $1.025 billion, representing the other top two banks in what has been a bumper year for those underwriting newly public companies.
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However, the record revenue from investment banks come as IPO performance has sorely lagged behind the broader market. The Renaissance IPO ETF IPO, -0.85%, an exchange-traded fund that tracks the performance of new offerings, was down 11.3% on the year, as of Wednesday, which would represent its worst annual performance since 2018, when the ETF declined roughly 18%.
On top of that, the broader market handily beat returns of your average IPO, with the Dow Jones Industrial Average DJIA, +0.25% looking at a year-to-date gain of over 19%, the S&P 500 index SPX, +0.14% up nearly 28% thus far in 2021 and the technology-laden Nasdaq Composite Index COMP, -0.10% staring at a 22% return in the year to date, despite a number of hiccups for investing throughout the COVID-ridden period.
John E. Fitzgibbon, Jr., founder and editor of IPOScoop, an IPO data and rating service in Rahway, N.J., said that new issuances had a lot of support on the first day of trading but failed to maintain longer-term interest.
“After the hot money moved on, there was no aftermarket performance,” he said, referring to trading activity on the IPOs’ first sessions.
“You will see huge trading volume on the first day,” Fitzgibbon said, “and about half that on the second day, and after that, you’ll see about half the volume on the third day.”
MarketWatch’s Emily Bary reported that 2021 marked the strongest year for IPO listings and volumes in history, surpassing 1,000 offerings for the first time ever, according to Dealogic data, which showed a record $315 billion raised — when that total had never before hit $200 billion in a year.
Bary noted that more than half of those deals were SPACs, as 606 blank-check companies went public in 2021, with most of them heavily frontloaded into the beginning of the year — 298 of the SPACs that went public were in the first quarter of 2021.
Some of the notable companies that made their debut in 2021 to much fanfare, only to stumble, include Robinhood Markets Inc. HOOD, -1.95%, Poshmark Inc. POSH, -2.40%, Bumble Inc. BMBL, -2.19% and Coinbase Global Inc. COIN, -3.34%, which went public through a direct listing. Los Angeles-based Honest Co. HNST, -1.65%, which sells environmentally clean baby and personal-care products, priced its IPO at $16 in May but was trading at about half that on Wednesday.
In fact, two-thirds of the companies that went public in 2021 are underwater relative to their IPO prices, The Wall Street Journal reported on Wednesday.
Wells Fargo banking analyst Mike Mayo said that this year highlights a renewed bull market for Wall Street.
“The record year for IPOs reflected a period of bull-market banking,” he told MarketWatch.
He said, however, that there was little chance of the trend continuing into 2022.
“I have not spoken to one banker or investor who expects this pace of activity to continue, but it may stay above 2019 levels longer than people think,” he said.
Goldman, Morgan Stanley and JPMorgan officials either declined to comment or didn’t immediately return requests for comment.