‘Unicorns’ disappear as US IPO market stalls

Wall Street’s “bulls” may have returned in October as the “bears” appear to have gone into hibernation. But there is another beast, albeit a mythical one, that has been largely absent from the stock market all year: unicorns.

There has been little demand for private companies to make their initial public offerings (IPO) debuts.

Only two companies went public on US stock exchanges last month. According to data from IPO research firm Renaissance Capital, this was the slowest October for the IPO market since 2011.

Additionally, only 66 companies have gone public so far this year, down more than 80% from the year before.

Several unicorns — the nickname given to startups valued at $1 billion or more — have reportedly delayed plans to go public this year. Many may do so in 2023 if the market improves.

That list reportedly includes grocery shopping service Instacart, social media site Reddit and financial technology giant Stripe.

SPACs in decline

Demand for companies that go public through mergers with so-called “special purpose acquisition companies”, SPACs, has also imploded. Only 82 companies have gone public through this mechanism so far this year, according to SPAC Research. It is much less than the 613 of 2021.

The problems in the SPAC market are more worrisome because when a company goes public like this, it typically has about 18 to 24 months to find a partner to merge with before being legally forced to liquidate and return the money to investors.

SPAC leader Chamath Palihapitiya was forced to close several of his companies. Legendary investors Sam Zell and Bill Ackman also dropped out of SPACs this year after failing to identify a viable startup to acquire.

Still, there is some hope that the traditional IPO market may be slowly recovering.

One of two companies that went public in October was Mobileye, a self-driving car company owned by chip giant Intel. Demand was strong for Mobileye’s shares: the shares were quoted above the supply range and were up nearly 40% on the first day of trading.

Possible dammed IPOs

This shows that there is still demand from investors for companies that are in dynamic and fast-growing markets. With that in mind, other unicorns could go public in 2023 if the IPO window opens again.

Cryptocurrency exchange FTX, sports products leader Fanatics, Fortnite owner Epic Games and mobile banking app Chime are among the top 2023 IPO candidates, according to Wall Street analysts.

But the IPOs of the two most valuable startups on the planet seem less likely.

One, TikTok owner ByteDance, could be worth $140 billion, according to research firm CB Insights.

A listing of its shares, however, at least in the US, is unlikely to happen anytime soon, given the economic tension between the Joe Biden administration and China over restrictions on US semiconductor exports.

Chinese companies can choose to go public in Hong Kong or Shanghai rather than New York.

Chinese publicly traded companies have also come under more scrutiny by US regulators this year. The SEC, the US real estate securities commission, investigated the IPO of China’s ride-hailing app Didi, for example.

The other name on the list is SpaceX. The space exploration company led by Elon Musk is worth $127 billion, according to CB Insights. Musk, however, practically ruled out an IPO for the company.

Tesla’s CEO and Twitter’s new owner suggested, on the other hand, that an IPO of SpaceX’s satellite internet business, Starlink, could take place, but not before 2025.

So investors hungry for the IPO of some new mega-unicorn like Uber, electric truck maker Rivian or Airbnb may have to wait a while.