After IPO Collapse, Investors Are Missing Out on Earnings Data

The slowdown in initial public offerings (IPOs) last year has left a void of earnings data, hindering investors who want more clarity on the health of the economy and corporate balance sheets. This is a historic slowdown that is having a significant impact on the ability of investors to make informed decisions.

The IPO market effectively shuttered in 2022, with proceeds shrinking 93% from 2021 to its lightest year in three decades. New listings were concentrated in technology and consumer-facing goods businesses.

Zachary Hill, head of portfolio strategy at Horizon Investments, said that more data from the sectors that are growing and expanding would provide important signals about how the economy is doing. This would give investors a better idea of where to put their money and how to grow their portfolios.

People are trying to understand how the economy is really doing in terms of consumer spending. A lot of businesses that sell directly to consumers have a good read on this.

According to Hill, data from technology startups would also provide traders with valuable insights into how the industry is dealing with costs in the face of the first downturn experienced by some of these firms.

Just four members of last year's US IPO cohort have confirmed dates on the earnings calendar, according to data compiled by Bloomberg. Mobileye Global Inc. will report first on Thursday, followed by a four-week break before another 2022 IPO reports.

After going public, one of the first things that can move a stock's price is its earnings. This price action is important to understanding how much risk investors are willing to tolerate, Bloomberg Intelligence equity strategist Michael Casper said in an interview.

According to one analyst, small-cap stocks are often more risky than their larger counterparts due to limited public financial information and typically lack of profitability. He noted that when these stocks are doing well after issuance, it is usually a sign that investors are taking on more risk, while when they are not doing well, it is usually a sign that risk aversion is increasing.

The lack of data is making it difficult to plan for IPOs in 2023.

Firms hoping to reopen the IPO market in 2023 are finding fewer peers to cite as models. A lack of successful IPOs in recent years is adding to the challenges that have been holding back dealmaking since the beginning of the year.

According to Erik Gordon, professor at the University of Michigan’s Ross School of Business, fewer earnings reports from new issues adds more uncertainty. When there are fewer IPOs, there are fewer comparable companies investors can use as benchmarks.

Investor reactions to earnings announcements from upcoming IPOs could provide a view into appetite for similar offerings in the months ahead, MKM analyst Rohit Kulkarni said in an interview. This could give insight into whether investors are willing to take on more risk in the near future.

After Mobileye reports this week, TPG Inc. will report on Feb. 15 and Corebridge Financial Inc. will post results on Feb. 17. Modiv Inc. has confirmed a Feb. 23 report date, around when other smaller-cap names may join the calendar.