Blockbuster IPO market still calls for cautious approach

LOS ANGELES (AP) — Wall Street has rolled out the welcome mat for companies going public this year, boosting proceeds from initial public offerings to the highest level in six years.

IPOs slowed sharply in the spring due to the pandemic, but they surged in the summer as the market recovered from a steep slump and rallied to new highs. And so far, betting on IPOs has paid off.

Companies that have gone public this year have averaged a return of 53.8% above their IPO price, including a return of 23.4% after their first day of trading, according to Renaissance Capital, an IPO research provider.

In the 10 years prior, however, the average return after the first day of trading was 3.2%, a track record that includes some flops and is why many analysts caution investors not to follow an IPO just because of the hype.

Household names like DoorDash and Airbnb are the latest IPOs to whet investors’ appetite for solid returns. DoorDash shares surged nearly 86% above their offering price of $102 in their market debut Wednesday. Ahead of the IPO, the delivery service projected it would raise $3.37 billion in the offering. That edges out Snowflake for the biggest IPO so far this year, according to Renaissance Capital.

Airbnb’s own market debut on Thursday could end up blowing past that.

“This year had a lot of large IPOs,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital. “And its had the most billion-dollar IPOs ever.”

This year is projected to finish with 210 IPOs raising about $80 billion combined, Kennedy said. That would be up from 160 IPOs and $46 billion in proceeds last year, and the highest level since 2014.

The backdrop for companies going public this year has been more than welcoming. The Federal Reserve has kept interest rates near...