The Wall Street Journal, in a June 8 analysis by markets columnist Telis Demos, examined the historical performance of U.S.-listed IPOs and found that the much-hyped first-day “pop” — an average gain of about 19% from offering price to first-day close — benefits only the investors who secure shares at the offering price. For everyone else, the Journal reported, the returns over the medium term are meaningfully worse than the market.
Ritter’s dataset, covering nearly 9,300 IPOs from 1980 through 2024, showed that buying an IPO at the end of its first trading day and holding it for three years produced returns about 21% lower than what a value-weighted market index would have delivered over the same period, according to the Journal.
The gap narrows but does not disappear for larger companies, the Journal reported. IPOs of companies with inflation-adjusted trailing revenue of $500 million or more still underperformed the market by about 4% over three years, and their first-day pop was smaller — around 10% on average.
The root cause, according to the analysis, is that most investors cannot buy into IPOs at the offering price. Underwriting banks use a book-building process to allocate shares, favoring institutional clients with whom they have ongoing relationships. Even institutional investors often must participate in less-attractive deals to gain access to sizzling ones, the Journal reported. Everyday investors who do receive an allocation typically get a sliver of what they requested.
Index funds, a common vehicle for retail investors, also generally miss the first-day pop, the Journal noted. Even when indexes add a stock quickly after listing — some may add SpaceX just days after its debut — the index fund must buy at market prices after the pop has already occurred. Float-weighting, where indexes weight companies by the value of shares actually available to trade, provides an additional safeguard: because SpaceX is selling less than 5% of its shares, its influence on a float-weighted index will be smaller than its $1.77 trillion market capitalization might suggest.
The Journal’s analysis noted that IPOs with a small float (10% or fewer of shares floated) tend to produce outsize first-day pops — averaging about 32% — but their three-year returns still trailed the market by about 5%, roughly in line with the broader revenue-bracket average.
Applying historical patterns to the SpaceX IPO is difficult, the Journal said, given that it will be the largest listing ever, at the highest valuation ever, led by Elon Musk. For investors who cannot buy at the offering price, the column concluded: “Remember that rocket launches are almost always fun to watch. Being on the rocket is something else entirely.”