News of the recent Saudi Aramco’s IPO have hit the markets and it has become apparent Saudi Aramco has failed to raise capital expected. This news hits the market alongside many other ‘failed’ IPOs, i.e. Uber, and uncertainty in listing in the stock markets is higher than ever alongside extreme fluctuations regionally and globally in stock prices.

Corporations experiencing healthy growth and favorable public perception usually expect success – smooth process that reflect the amount of preparation, though not necessarily of the level of Facebook and Amazon - in their initial public offering. The approach to which IPO projects are set out should be made more cautious in face of the current macroeconomic challenges and it is crucial to assess the general failures and successes of an IPO – which can effectively be measured by post-IPO stock price fluctuations that corporations experience. In order to present an overview of the unpredictability of IPOs and such company share price fluctuations this assessment is key and can be utilized to determine the ways in which corporations and individual investors should approach investing in equity.

According to data from the financial times, AO World – a firm that set out to revolutionize the retail business - listed at 285 pence in 2014 but, in face of the move to online shopping and with the failing retail industry, experienced a 57% decline in prices to 57 pence this year. The fall in stock price signals, as an effective indicator of market performance, the challenges for the current retail market and acts as one of the figure keys for all investor bodies globally. Aston Martin experienced an 80% deterioration in prices despite a confident 19 Great Britain Pound (GBP) listing in 2018 to 373 pence this August. Oscado suffered a two-third deterioration after its IPO in 2010 but reached back up far to a 546% increase of 14 GBP this year. It is clear the uncertainty in share price following IPO and the indicators as to performance are closely linked with how companies interact with the forces within the market.

It is not to say that IPOs of the current day and age cannot perform, as illustrated with the eventual success of Oscado and earlier post-IPO successes some firms experience. Boohoo.com is an ‘unlikely winner’ that experienced a 350% increase in stock price despite intense competition within the high street and online retail market. Just Eat, Jupiter Fund Management, and Crest Nicholson – which experienced a 67% increase following its 2016 IPO – follow suit and set examples of how IPOs result in successes to a variety of firms.

As both institutional and individual investors, it is risky obtaining an equity stake from the IPO stage and more so at this time and age. It is necessary to conduct a standard of research that surpasses the routine to not just inspect the firm’s financial credentials and general research but rather to conduct intricate and concentrated research about how the firm is competitive and/or weak within the niche market. The challenges and opportunities for a firm within the certain market, in combination with an understanding of how to tackle the challenges and take advantage of the opportunities as well as a comparison of this understanding of the firm’s actions will prove insightful to the likely performance post-IPO. In face of the current global, and particularly European, paradigm of deteriorating share prices and instability post-IPO performances are becoming more and more unpredictable. It is by tackling this change in circumstance effectively as outlined that a proper understanding of the equity financial markets are coherently understood.

William Lee

The Unpredictability of Recent IPOs and Stock Fluctuation