Deceiving Looks

Stitch Fix Doesn't Need to Mend the IPO Market

Despite high-profile flops, initial public offerings are showing some strength.
Photographer: Bruno Vincent/Getty Images

Given the number of prominent IPO flops this year, investors can be forgiven for thinking that the market has been a bust again. But they would still be wrong because the IPO market is actually having its first good year in a while.

First, the bad news: Another dud deal is due on Friday. The initial public offering of clothes subscription service Stitch Fix Inc. priced on Thursday night at $15, well below the expected $18-to-$20 range. The company is also selling fewer shares than expected. The stock may still rise when it begins trading on Friday, but the lower price and fewer shares are both signs that Stitch Fix could join the ranks of Blue Apron Holdings Inc. and Funko Inc., two other IPOs that were supposed to be hot but instead got the icy cold shoulder from investors. (That doesn't include another conspicuous disappointment, Snap Inc. While its IPO went off fine and its shares held up for a while, they have since dropped.)

IPOs Inch Up

The amount of money being raised in initial public offerings is rising but well below peak

Source: Dealogic

Data as of 11/16/2017

The good news is that just when many investors appear to have lost interest in IPOs, the deals, at least in terms of performance, are having one of their best years in a while. The Renaissance IPO ETF, which tracks the performance of new issues, is up nearly 34 percent this year. That follows two years in which the returns of IPOs, which investors have been trained to expect to shoot up, were lackluster. What's more, there have already been 169 deals this year, up from just 111 last year, and on pace to top 2015 as well, according to Dealogic. This year's deals have raised $45 billion, which is nearly double last year though still far behind the $95 billion that was raised in 2014.

Nonetheless, there has been a divergence, with some of the highest-profile deals ending up as the biggest disappointments. In all, 45 of 169 U.S. IPOs this year are trading below their IPO prices, according to Bloomberg data. The biggest flop was Valeritas Holdings Inc., a health care products company that went public in March. Its shares are down nearly 75 percent. But Blue Apron is not far behind. Shares of the delivery food service are down nearly 70 percent. Shares of retailer J. Jill have slumped 60 percent since its IPO.


Meal-delivery service Blue Apron has been one of a number of high-profile IPO flops this year

Source: Bloomberg

Some other, mostly lesser watched, deals have done better. For example, shares of semiconductor company Smart Global Holdings are up 227 percent from their May IPO. And the stock of Roku, the maker of wireless streaming devices, is up 185 percent since its September offering.

Rock and Roku

Shares of Roku have performed well since its IPO

Source: Bloomberg

Kathleen Smith, principal at Renaissance, which manages the exchange-traded fund, attributed the divergence to a smaller number of individual investors who are interested in the deals despite the health of the IPO market. Institutional investors are taking a closer look at deals and being more picky. The culprit is the usual one for Wall Street these days, index funds. Because more people are engaged in passive investing, fewer are looking to invest in IPOs. "That's led to fewer first day pops but better performance overall," Smith said.

So chalk it up to looks can be deceiving. The IPO market is moving smoothly beneath the choppy surface.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Stephen Gandel in New York at

    To contact the editor responsible for this story:
    Daniel Niemi at

    Before it's here, it's on the Bloomberg Terminal.