NEW YORK – Stocks are on fire in 2019, but the IPO market is still in hibernation mode because of a chill caused by the government shutdown and market mayhem.

Just seven IPOs have come to market so far this year, a 71% plunge from the same period in 2018, according to market intelligence firm IHS Markit.

The tech sector, normally the epicenter of IPO land, is in the midst of its longest IPO drought in nearly three years.

And several companies, facing tepid demand from nervous investors, decided to postpone their debuts altogether.

“It’s a direct reflection of the government shutdown,” said Jackie Kelley, Americas IPO leader at EY, which used to be known as Ernst & Young.

Kelley said there was a “robust pipeline” of companies targeting an early 2019 IPO prior to the shutdown, which was the longest in American history.

Due to the lapse in funding, the SEC operated with limited staff, slowing the agency’s central role in reviewing IPO registration statements. Before a company goes public, staffers at the SEC review IPO filings to ensure accountants have blessed financial results. The SEC often asks companies to add additional disclosures about the risks they face and how their business is operating.

Even though the shutdown ended in late January, some companies have been forced to delay their debut because their quarterly results have become outdated.

“If your financials are stale, you have to wait,” said Kathleen Smith, principal at Renaissance Capital, which manages ETFs that track recent IPOs.

IPO stocks plunged

The other problem is that global stock markets plummeted at the end of 2018, which rattled private companies looking to go public and potential IPO investors. The S&P 500 suffered its worst December since the Great Depression.

Jittery investors scrambled to dump shares of newly-public companies, which are often thought to be riskier than their more established peers. The Renaissance IPO ETF plummeted 23% in the fourth quarter, the worst decline since the ETF launched five years ago. Major holdings like Snap and Spotify fell even further.

“We had a very, very poor performance,” said Smith. “Investors don’t want to look at new IPOs when existing ones have fallen that much.”

And companies that have pulled off an IPO are not getting top-dollar.

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The average IPO has priced 4.8% below the midpoint of the expected range, according to Renaissance. None of the IPOs have priced above that midpoint.

“IPO investors are pretty price sensitive right now,” said Smith.

But like the rest of the stock market, shares of recently-public companies have rebounded sharply in 2019.

The Renaissance IPO ETF has surged 27% in 2019, nearly tripling the S&P 500’s 11% rally.

No tech IPOs since October

The IPO market in 2019 has been dominated by the healthcare space. Companies in this sector have raised almost $800 million so far this year, surpassing what they raised at this point in 2018, according to IHS Markit.

Just one non-healthcare IPO has come to market: New Fortress Energy, a liquidized natural gas company that debuted on the Nasdaq in January. The company was founded by Wes Edens, co-owner of the NBA’s Milwaukee Bucks and co-CEO of private equity firm Fortress Investment Group.

No tech companies have gone public since late October when StoneCo, a credit card processor, debuted.

Next week, Super League Gaming, an esports company, is expected to go public. If that happens, it would snap a 17-week tech IPO drought, the longest since one that ended in April 2016, according to IHS Markit.

EY’s Kelley believes the recession fears of late last year will prove to be a boon to the IPO market in 2019. She said that multiple companies have accelerated their IPO timelines in a bid to go public before the unusually long economic expansion ends.

Ready or not, here come the unicorns

Ride-sharing company Lyft filed a confidential IPO proposal to the SEC in December. Rival Uber, which was last valued at $72 billion, is also expected to go public in 2019.

Other unicorns including Airbnb, WeWork and Pinterest — all valued at $10 billion, at least — are also reportedly eyeing an IPO this year.

Even older companies are getting into the act. Levi Strauss, the 165-year-old inventor of blue jeans, filed for an IPO last week.

“It’s going to be a big year for IPOs,” said Kelley, who added that a number of companies “you haven’t even heard about” are planning to go public as well.

But can the IPO market absorb all that newbie stock?

Renaissance Capital’s Smith is bracing for an “unprecedented” amount of issuance from unicorn companies in 2019 that would exceed even what was raised during the dotcom boom.

“Are investors going to throw caution to the wind and buy Uber at any price? I don’t think so,” she said.

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