Analysis of 45 Years of U.S. Large-Cap IPOs: Average 10% First-Day Jump Followed by 3-Year Underperformance

As anticipation builds ahead of the SpaceX initial public offering (IPO) scheduled for June 12 (local time), an analysis has revealed that while most companies newly listed on the U.S. stock market see their share prices surge on the first day, they tend to underperform over the following three years.

This means that while investors can make money by purchasing shares at the offering price, returns are generally poor for those who buy at market price after the listing.

Jay Ritter, a finance professor at the University of Florida, analyzed the returns of approximately 9,300 IPOs in the U.S. market over the 45-year period from 1980 to 2024. The Wall Street Journal (WSJ) reported on June 8 (local time) that, on average, share prices rose 19% from the offering price on the first day of trading.

On average, investors who were able to purchase shares at the offering price could have realized significant gains on the first day.

However, for those who bought the newly listed shares at the closing price on the first day and held them for three years, the returns were about 21% lower than the market average.

When limited to large companies with revenue of $500 million or more (adjusted for inflation), the first-day closing price rose by an average of 10% compared to the offering price.

The return over the subsequent three years was about 4% lower than the market average.

The WSJ pointed out that this occurs because most investors cannot buy newly listed shares at the offering price and must wait until trading begins, by which time the company's valuation has likely already risen significantly.

Generally, competition for IPO shares is intense.

IPO underwriters go through a complex allocation process to balance the ratio of short-term and long-term investors.

Shares are not simply allocated to the highest bidder on a first-come, first-served basis.

Institutional investors must also participate in less popular IPOs if they wish to gain access to highly sought-after ones.

SpaceX is targeting a market capitalization of $1.77 trillion following its listing.

According to recent filings, the IPO volume for SpaceX accounts for only about 5% of its equity.

The WSJ noted that an IPO brings luck to only a few, while the rest must simply hope for the best.
※ Please note: This article was translated by AI and may contain errors.