By Telis Demos
When it comes to initial public offerings, the first-day pop is the fizz that attracts so much interest. After that, they often fall flat.
That's worth bearing in mind amid the hoopla accompanying this week's SpaceX offering in what is set to be the biggest IPO ever. Hopes are high that it will produce a large first-day return, or "pop."
Historically speaking, that's a fair expectation. Though every deal is its own adventure, the average U.S.-listed IPO's first-day gain from offering price to its closing price at the end of the first day of trading is about 19%, according to data compiled by University of Florida finance professor Jay Ritter.
That's great for those lucky enough to have gotten in at the offering price. But most investors aren't that lucky. For them, buying shares of recently listed IPOs on average doesn't work out so well.
The average historical return for buying an IPO at the end of its first day of trading and holding it for three years is about 21% lower than what a value-weighted market index would have returned, according to Ritter's historical data. This set spans nearly 9,300 U.S.-listed IPOs from 1980 to 2024.
Of course, many IPOs are of small, highly speculative companies. The gap is smaller, but still present, when looking at IPOs of larger companies.
IPOs of companies with inflation-adjusted, trailing-year revenue of $500 million or more still underperformed the market by around 4% on average over three years. Their first-day pop is also smaller, on average, around 10%.
So why are IPOs good for a few and bad for others?
Simply, most investors can't get access to IPOs themselves at their offering price. Instead, they must wait for the stock to open for trading. At that point, any pop has likely already happened and they will lose out on that return boost.
Banks that underwrite IPOs engage in a book-building process that can be more art than science, trying to build just the right mix of short- and long-term holders of the stock. It isn't just a first-come, first-served, to-the-highest-bidder sort of deal. In fact, even institutional investors often need to participate in ho-hum deals to get access to the sizzling ones.
Everyday investors might be a part of the mix, as they are anticipated to be in SpaceX's IPO. But the interest among investors is usually so great that even an individual lucky enough to get shares will get only a sliver.
Quickly adding IPOs to indexes isn't a workaround, either. Some indexes may add SpaceX just a few days after its listing.
But unless a passive fund that follows those indexes decides to make a move ahead of the index, and actually buy into the IPO itself at the offering price, they also won't get the benefit of the pop.
Some investors prefer for indexes to wait longer. Others want indexes to reflect the market, not to time their addition of companies for ideal returns.
In either case, indexes typically have an additional safeguard. SpaceX is aiming for a $1.77 trillion market value. This suggests it should be a big part of a value-weighted index. But because it is selling only a small slice of its shares, most indexes will give it smaller consideration. As of its most recent filing, SpaceX would be selling less than 5% of its available shares in the IPO offering.
Many indexes are "float-weighted," meaning they reflect only the value of shares available to trade, not those that are still locked-up with insiders. This helps protect index funds from having an outsize influence on a stock that doesn't have many shares to trade.
Having a small float does historically have a benefit to IPO buyers, too. But typically it goes to investors who get in on the first-day pop.
From the closing price of their first trading day, IPOs of companies with more than $100 million in inflation-adjusted annual sales, and which had floated 10% or fewer of their shares, have on average three years later underperformed the market by about 5%, according to Ritter's data. That's roughly similar to IPOs of companies of that revenue range overall. But, the pop on those deals is outsize: On average, they have had first-day gains of about 32%.
But applying any historical analysis to SpaceX is pretty difficult. It is pursuing the largest listing ever, at the highest valuation ever, and with the unique figure of Elon Musk remaining in control of the company.
For investors who aren't in at the offer price, remember that rocket launches are almost always fun to watch. Being on the rocket is something else entirely.
Write to Telis Demos at Telis.Demos@wsj.com
(END) Dow Jones Newswires
June 08, 2026 05:30 ET (09:30 GMT)
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