The initial public offerings (IPOs) market was lackluster in 2023. Renaissance IPO ETF (IPO Quick QuoteIPO - Free Report) was up 55% last year. But the U.S. IPO market may rebound in 2024. Greg Martin, the Managing Director at Rainmaker Securities, is eyeing a potential resurgence in the IPO market for 2024, as quoted on Yahoo Finance. This shift is attributed to several positive factors that have emerged, such as a more accommodative Federal Reserve, declining yields, and the stabilization of the economy.

As of December 19th, there have been 108 companies that have finalized their IPO pricing in U.S. markets. This represents a 52% rise compared to the corresponding period last year. However, it's worth noting that this figure is the third-lowest in the past decade and is significantly down by 73% compared to the peak levels observed two years ago, as quoted on an Investopedia article.

Similarly, IPO funds generated from listings with a market capitalization of at least $50 million have increased to reach $19.4 billion, a notable rise compared to the $7.7 billion recorded in 2022. However, it's important to highlight that this figure reflects a significant 86% decrease from the $142.4 billion observed during the same period in 2021.

Balancing Risks and Opportunities

While there are lingering risks on the horizon, particularly in terms of geopolitical uncertainties, Martin remains optimistic about a major upturn in 2024 if the current favorable conditions persist. The lackluster post-IPO performance in 2023 led to a slowdown in issuance, but Martin believes that a strong showing from expected IPOs could propel a positive trend next year.

According to Pitchbook Data, an analytics company that specializes in private equity and venture capital markets, the deceleration in activity since early 2022 has resulted in a backlog of venture-capital-backed firms waiting for an opportunity to go public.

This backlog comprises approximately 220 companies, and when more favorable financial market conditions materialize, there is a potential for these companies to expedite their listings to capitalize on the changing market dynamics, as suggested by Pitchbook, quoted on Investopedia.

Profitability Takes Center Stage

Martin emphasizes a notable shift in investor preferences. Companies that can demonstrate "stable, but profitable growth" are expected to garner more attention, with investors increasingly focusing on profitability rather than rapid expansion.

Factors Influencing Investor Interest

Martin discusses the pivotal role of investor sentiment and early IPO performance in shaping the IPO landscape for 2024. He highlights that a significant amount of cash remains on the sidelines, and IPOs will need to offer returns that outperform low-risk investment options.

Any Wall of Worry?

Javier Avalos, co-founder and CEO of Caplight, which tracks trading in shares of private companies that comprise the breeding ground for IPOs, said it seems unlikely that the market will warm up soon, the Investopedia article noted.

"The pre-IPO market is not really expecting a flurry of IPO activity in early 2024," Avalos said. Avalos also noted that Caplight's trading platform presently has a higher number of private shares listed for sale compared to those available for purchase, indicating a discouraging sign for a potential recovery in the IPO market.

Investors often look to buy shares of private firms when they expect those firms to go public, offering them a chance to leave their position at an attractive profit. Currently, only generative AI firms Open AI and Cohere appear to be the most sought-after private market shares.

Potential IPO Candidates?

Avalos pointed out the presence of potential 2024 IPO candidates. For instance, Turo, an online car rental firm, has generated considerable pre-IPO market interest and secured nearly $500 million in funding. Similarly, Shein, a China-based online fashion company, filed for a U.S. IPO in late November, aiming for share sales of up to $90 billion, despite facing questions about alleged forced labor in its supply chain.

Additionally, reports indicate that Reddit, the social media giant that initially filed an IPO prospectus in 2021, may revisit raising capital, potentially up to $15 billion. Databricks, a data analytics firm valued at $43 billion, also remains a potential IPO contender. Meanwhile, Stripe, a digital-payment processing company that initiated steps toward going public two years ago, may seek funding of up to $50 billion.

(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)