What does the initial public offering (IPO) market have in store for 2023? After the miserable performance of stocks last year and an all-but-closed market for IPOs, it’s hard to imagine that this year could do worse. But it might not perform any better either if the macro winds don’t change.

Still, even in tough times, highly anticipated companies find their way to the market, such as Porsche’s IPO in September 2022. With many experts expecting the market to improve later in the year – after a recession – companies may be encouraged to go public, as valuations rise.

Here are seven hot companies that may conduct their IPO in 2023.

Upcoming IPOs to watch for this year

After seeing record-breaking deal flow for IPOs in 2021, the year 2022 was mostly a bust. A mere 37 companies went public last year and raised just $7 billion, the lowest amount since 1990, according to Barron’s. The cause? Companies couldn’t get the stock valuations they wanted, as the Federal Reserve aggressively raised interest rates to slow spiraling inflation. The stock market fell for most of the year, affecting even the strongest and most stable companies.

And the trend looks set to continue for most of 2023, say market watchers.

“Rising interest rates have challenged the sky-high valuation multiples of 2020 and 2021, as interest rates are inversely proportional to valuations,” says Octavio Sandoval, director of investments at Illumen Capital. He anticipates “turbulent market conditions [will] continue to dampen investor and private company interest in liquidity events via IPOs.”

“Macro conditions will give investors pause, and the IPO market will continue to navigate a turbulent and rough road ahead in 2023,” says Dan Raju, CEO of Tradier, a brokerage platform.

This year will likely continue the marked shift away from the go-go years of 2020 and 2021.

“IPOs thrived as a result of a mass influx of new institutional investors looking to capitalize on dynamic news cycles and volatile market trends,” says Raju. “That is not the same sentiment in the market entering the new year, especially with continuing recession and inflation fears.”

Investors seeking IPOs will need to look to the Fed and broader macro issues if they expect the IPO window to open substantially in 2023. For example, if the economy experiences a so-called “soft landing” without a significant recession, IPOs may come back on the table.

“A soft landing in 2023 with a federal funds pivot could allow market headwinds to die down,” says Sandoval. “Additionally, if market dislocation dissolves and pent-up demand for IPOs is released, the flood gates for exits through public listings would likely open.”

However, a recession – which according to experts’ forecasts has a 64 percent chance of occurring and could well extend into the second half of the year – may push IPOs off the table almost entirely.

“An intensification of market headwinds in the form of a full-blown recession could shut down buyer appetite for risky assets like equity markets,” says Sandoval.

Here are some of the most-anticipated IPOs that could hit the market soonest.

1. Stripe

Stripe’s payments processing business for e-commerce has been riding the wave of online shopping, which moves higher during the pandemic. The company has major supporters in the form of venture capital firms Andreesen Horowitz, Kleiner Perkins and Sequoia Capital, and hit a high valuation of $95 billion in 2021, though Fidelity and T. Rowe Price slashed that valuation in 2022, as the market for tech stocks tumbled. Stripe has been rumored to be on the IPO train for some time, though the company has said that it’s in no big hurry to get there.

2. Databricks

Databricks is a tech unicorn that has the potential to be an IPO valued in the tens of billions, and therefore one of the highest-profile offerings in any year that it goes public. The cloud-based data infrastructure company was valued at $38 billion in 2021, but that figure was marked down to $31 billion in October 2022. Rivals included recent IPOs Snowflake and Confluent. Databricks has some top investors, including Andreesen Horowitz, BlackRock, Tiger Global and Fidelity.

3. Reddit

The so-called “front page of the Internet,” Reddit runs one of the most popular websites for engaging in discussions with those who share similar interests and hobbies. The site was the epicenter of the GameStop stock spike in 2021 when traders congregating there helped blast that stock into orbit. Reddit’s last funding round priced the stock at a $10 billion valuation after Fidelity Investments put in $400 million in August 2021. However, since then, Fidelity has marked down the valuation on its books by 36 percent to reflect the broader market’s decline.

4. Instacart

Instacart has been a rumored IPO candidate for several years now, in part because it has the potential to be one of the largest debuts, with a valuation in the tens of billions. It’s had a decent showing during the pandemic when its key service – delivering groceries and other goods to your home – became a “turn to” for frightened and wary consumers. A March 2021 funding round valued the company at $39 billion and included top venture capitalists such as Andreesen Horowitz. After cutting its valuation in May and October 2022, Instacart has reportedly cut its internal valuation to $10 billion, as of January 2023, according to The Information, resulting in a massive drop from the figures of a year ago.

5. Discord

Discord offers instant messaging, voice and video calls — a kind of Slack or Microsoft Teams for everyone who has a special interest, especially those in the gaming world. It has grown monthly active users at a staggering pace, from 56 million in 2019 to 150 million by the close of 2021, according to CNBC. Microsoft was once interested in acquiring the company at a rumored price of $10 billion, and a 2021 funding round raised its valuation to nearly $15 billion. However, Fidelity Investments reduced its own valuation by 32 percent in mid-2022, back to $10 billion.

6. Chime Financial

Chime offers a financial app that acts like a bank, offering fee-free accounts for customers. It’s been a hit with consumers, too, ranking top in a 2021 survey of net promoter score, and boasts more than 12 million active users as of 2021, according to the company. Speculation has been rife for years that Chime would be going public, but it’s still private and looking for the right time to debut. Chime’s recent high valuation was $25 billion, in late 2021, and initial reports had an IPO pricing at even a still-higher valuation. However, with the decline in stock valuations in 2022, investors should expect a markdown from that $25 billion price tag.

7. SpaceX

SpaceX is raising $750 million in early 2023 at a $137 billion valuation, according to CNBC, so Elon Musk’s spaceship company – along with its Starlink unit that provides satellite internet service – may not be in the market for an IPO just yet. But launching rockets into space doesn’t come cheaply, however deep your pockets. Andreesen Horowitz and Sequoia are among the biggest investors in the company, and unlike other companies on this list, SpaceX’s valuation is rising as part of its latest funding round (not unlike the company’s rockets).

Bottom line

The IPO market is hot when the overall economy is running well and investors’ animal spirits are running high. As long as the outlook remains dim, companies will stay conservative and defer an IPO, especially the high-profile issues that benefit from extreme investor optimism.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.