Beyond Day One:  The Long Term Record Of IPOs

What the Data Says: A Series on the Evidence Behind Long-Term Investing

SpaceX’s June IPO has put new stock offerings back in the spotlight. The company raised approximately US$85.7 billion and began trading publicly on June 12. Attention is now shifting to Anthropic, the artificial intelligence company behind Claude, which is reportedly preparing for a possible IPO. No final timing or terms have been announced.

It is not difficult to understand the interest. These are prominent companies operating in areas that could reshape large parts of the economy. An IPO also creates a sense that investors are being offered a rare opportunity to participate at the beginning of something important.

But a great company is not necessarily a great investment at every price. For most investors, the relevant question is not how exciting the business is or how the stock performs on its first day. It is what happens after the initial excitement fades.

Who benefits from the first-day gain?

Before an IPO begins trading, the company and its underwriters establish an offer price. Shares are then allocated to institutional investors and, in some cases, individual clients of the underwriting firms.

Suppose an IPO is priced at $100 and closes its first day at $130. The reported first-day gain is 30%. That return is earned by investors who received shares at the $100 offer price. An investor who buys after the shares begin trading may pay approximately $130, so that investor’s return starts from $130—not $100.

This distinction is often lost in the coverage. A sharp first-day increase may create an attractive headline, but it does not mean that an ordinary investor earned that return. It can also mean that much of the initial optimism was already reflected in the price by the time the shares became readily available.

The more useful question is therefore not what happened on day one, but how IPO investors performed over the following several years.

What the long-term record shows

Jay Ritter, a finance professor at the University of Florida, has maintained one of the most widely used databases on U.S. IPOs for several decades.

His latest figures cover 9,253 U.S. operating-company IPOs completed between 1980 and 2024. The returns are measured from the closing price on the first trading day, which better reflects the starting point available to most public-market investors.

Over the subsequent three years, the average IPO produced a positive return of 19.1%. On its own, that sounds respectable. Over the same investment periods, however, the broad U.S. market returned approximately 39.6%. The average IPO therefore trailed the market by 20.5 percentage points.

Because IPOs tend to be smaller and more growth-oriented than the overall market, Ritter also compares them with established public companies of similar size and investment style. On that basis, IPOs underperformed by an average of 8.9 percentage points over the measurement period—equivalent to approximately three percentage points a year.

The lesson is not that every IPO performs poorly. It is that a positive return does not necessarily represent a successful investment. The appropriate comparison is what the same capital could have earned elsewhere at a similar level of risk.

The average conceals a wide range of outcomes

IPO returns are unusually uneven. A relatively small number of very successful companies can significantly raise the average result.

Ritter’s five-year data cover 9,195 IPOs completed between 1975 and 2021. Measured from the first-day closing price:

• The average five-year return was positive 37.8%.
• The median return was a loss of 32%.
• Approximately 43% of the companies lost more than half their value.
• Approximately 61% produced a negative return.

The difference between the average and the median is important. The average was lifted by a small group of companies that increased several times in value. The typical company, represented by the median, lost money.

Those exceptional winners are also the companies investors remember. Successful IPOs become household names, while the many unsuccessful listings quietly disappear through acquisitions, delistings or business failures. That can create the impression that buying newly public companies has been more rewarding than the full record suggests.

When enthusiasm is highest

IPO performance has also varied considerably depending on when companies came to market.

The technology boom of 1999 and 2000 is the most familiar example. The average 1999 IPO lost 47.6% over the following three years, while the average 2000 IPO lost 60.1%. Those were severe declines, although they occurred during a broader collapse in technology shares.

The IPO classes of 2020 and 2021 produced an even larger shortfall relative to the market. The average 2020 IPO lost 48.1% over three years and trailed the market by 78.6 percentage points. The average 2021 IPO lost 49.1% and trailed the market by 68.6 percentage points.

The number of offerings also rose sharply during that period. Ritter’s sample includes 311 IPOs in 2021, followed by only 38 in 2022.

This pattern is not surprising. Companies and their existing shareholders have a strong incentive to go public when investor demand is high and valuations are attractive. A surge in IPO activity can therefore reflect favourable conditions for sellers as much as an unusual opportunity for buyers.

What has made a difference?

The historical results were not entirely random. Two basic financial characteristics were associated with materially better outcomes.

Revenue

IPOs involving companies with at least US$100 million of annual sales performed much better than those involving smaller businesses. Over three years:

• Companies with at least US$100 million in sales trailed the broad market by 3.2 percentage points but outperformed similar-sized and similarly valued public companies by 2.3 percentage points.
• Companies with less than US$100 million in sales trailed the broad market by 34.3 percentage points and comparable companies by 17.9 percentage points.

The difference also appeared in the probability of a major loss. Over five years, approximately 30% of IPOs with at least US$100 million in sales lost more than half their value, compared with approximately 43% for the full sample.

Profitability

Companies that were profitable before going public also performed substantially better:

• Profitable companies produced an average three-year return of 33.6% and modestly outperformed comparable companies.
• Unprofitable companies lost an average of 0.5% and underperformed comparable companies by 23.4 percentage points.

Revenue and profitability do not guarantee a successful investment. They do, however, provide evidence that the company already has a functioning business rather than relying primarily on projections of what it may become.

What else should investors examine?

The prospectus contains information that is far more useful than the first-day share-price movement. Among the questions worth considering are:

• What valuation is being paid? A strong business can still be a poor investment if the offering price assumes years of exceptional growth.
• How will the proceeds be used? Capital used to expand the business may create future value. Proceeds used mainly to repay existing shareholders or restructure debt may be less compelling.
• Is the company profitable or generating cash? Reported revenue growth can obscure continuing operating losses, high capital requirements or heavy reliance on external financing.
• How concentrated is the business? Dependence on one product, customer, supplier or regulatory relationship can materially increase risk.
• How much control will public shareholders have? Dual-class share structures can allow founders and insiders to retain voting control even after selling a significant economic interest.
• How much dilution may follow? Stock options, restricted shares and other equity compensation can substantially increase the future share count.
• When do insider lockups expire? Employees and early investors are often restricted from selling immediately after an IPO. When those restrictions end, the additional supply of shares can contribute to volatility.
• What information is still missing? A newly public company has a limited history of reporting results, meeting public forecasts and allocating capital under the scrutiny of outside shareholders.

There is no requirement to buy immediately

An investor who does not buy an IPO on its first day may miss further gains. Waiting does not guarantee a lower price.

What waiting can provide is more information. After several quarters as a public company, investors can compare management’s forecasts with actual results, observe how the business performs outside the carefully managed IPO process and assess how the market absorbs shares sold after lockup periods expire.

None of this means investors should automatically avoid SpaceX, Anthropic if it proceeds with an IPO, or any other newly public company. Each investment should be assessed on its own merits.

The historical evidence does suggest, however, that excitement surrounding a new listing should not replace fundamental analysis. Most investors do not receive the offer price, many IPOs subsequently underperform, and a surprisingly large proportion suffer permanent losses.

The most important question is not whether the company has an exciting story. It is whether its likely future cash flows justify the price available to investors today.

Sources: SpaceX investor release dated June 15, 2026; Jay R. Ritter, University of Florida, “Initial Public Offerings: Updated Long-Run Statistics,” updated August 27, 2026; and published reports concerning a potential Anthropic IPO. Ritter’s principal sample includes U.S. operating-company IPOs priced at US$5 or more and excludes SPACs, REITs, closed-end funds, ADRs, unit offerings, banks, certain natural-resource partnerships and certain small offerings. Returns include dividends and are measured from the first trading day’s closing price. Anthropic has not announced final IPO timing or terms. Past performance does not indicate future results. This material is provided for information only and is not investment advice.