Beyond the first-day pop

Dave Harrison Smith, CFA
Chief Investment Officer
June 2, 2026

2026 is shaping up to be a banner year for initial public offerings, or IPOs. Few market events capture investor attention quite like a high-profile debut. A long-private company, often benefiting from a powerful secular trend, offers investors their first opportunity to participate through the public markets. The first-day trading pop, the volatility, and the outsized personalities involved all make for a compelling story.

The investment track record is more complicated.

Jay Ritter, a finance professor at the University of Florida and a leading authority on IPOs, has spent decades studying IPO performance. His research consistently finds that IPOs often generate strong first-day returns, but those gains primarily accrue to investors who receive shares at the offering price, typically large institutions and company insiders.

Beyond that initial bump, the historical record becomes far less compelling. From 1980 through 2023, excluding the technology bubble and subsequent collapse, Ritter found that the average three-year buy-and-hold return from the first closing market price was just 26.8%. That trailed the broader market by 19.0 percentage points. Put differently, investors would have been better served owning the broad market than chasing the average IPO.

The averages also hide substantial dispersion. Notably, Ritter’s work has shown stark differences in historical returns by valuation, with expensive IPOs performing especially poorly. In Dr. Ritter’s data, IPOs with a price-to-sales ratio above 40x underperformed the market by an average of 15.4% over three years, even for investors who purchased at the offer price. Staggeringly, only 3 of the 14 IPOs in this cohort outperformed the market, even if investors were able to secure shares at the offer price. For investors unable to acquire the shares at the offer price and instead purchased at the end of trading on the first day, the returns are even worse: -58.5% versus the broad market over three years.

When valuations get extreme, returns often disappoint
Three-year IPO returns by valuation cohort (1980-2023), measured from the offer price

There have been several prominent IPOs in the technology sector over the past fifteen years, including household names like Meta, Airbnb, and DoorDash. The table below highlights 10 of the largest and most notable IPOs over that time period. Notably, the average first-day return is substantial, though outcomes varied widely, with META’s essentially flat first-day return in 2012. Overall, while the group has some success stories, the longer-horizon return data illustrate the challenging investment proposition discussed earlier.

The IPO pop is only the beginning of the story
First-day, one-year, and three-year returns for select technology IPOs (2012-2023)

This does not mean IPOs should be dismissed outright. Some have become extraordinary businesses and exceptional long-term investments. But the IPO market has historically been susceptible to excitement, scarcity, and extrapolation, forces that can overwhelm valuation discipline.

As large IPOs continue to attract investor attention, history argues for selectivity rather than enthusiasm. The lesson is not to avoid IPOs altogether, but to evaluate them with the same rigor applied to any other investment. Our view is that a compelling story may capture investors’ attention, but long-term returns are ultimately determined by business fundamentals and the price paid for them.

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