Wall Street’s Groundhog Day
As Arm, the British chip designer, prepares for its highly anticipated IPO on the Nasdaq, market observers are anxiously awaiting its performance. The success or failure of Arm’s stock will serve as a litmus test for the IPO market. A decline in Arm’s stock will signal an extended freeze in IPO activity, while a warm reception could encourage more companies to go public in the near future.
David Hsu, a management professor at the Wharton School, emphasizes that offerings like Arm’s IPO provide insights into the overall sentiment of the market.
In a year that has seen the worst performance for IPOs since 2009, Arm’s entry into the public markets stands out. EquityZen’s analysis reveals that only 73 IPOs have raised $14.8 billion in the US this year, compared to 397 IPOs raising $142 billion in 2021.
Arm’s IPO is particularly intriguing because it offers a coveted technology with geopolitical and strategic implications. The company, founded in 1990 in Cambridge, England, provides chip blueprints to major tech giants like Apple, Google, Samsung, and Nvidia. While Arm is known for its chip designs used in smartphones, it aims to capitalize on the growing demand for advanced computer chips in the field of artificial intelligence.
SoftBank’s acquisition of Arm in 2016 for $32 billion attracted global attention. Despite SoftBank’s previous unsuccessful deals, the company is set to retain a majority stake in Arm after the IPO.
In 2020, Nvidia’s plan to acquire Arm for $40 billion fell through due to regulatory and customer opposition. This adds to the caution and skepticism surrounding other tech companies readying for their own IPOs.
Despite the challenging market conditions, companies like Instacart and Klaviyo are moving forward with their IPO plans. However, their valuations are significantly lower than their previous private market valuations. Instacart’s valuation range is set at $8.6 billion to $9.3 billion, down from its previous $39 billion valuation, while Klaviyo’s range is $7.7 billion to $8.3 billion, slightly lower than its last private valuation of $9.5 billion.
To boost investor confidence, companies like Arm, Instacart, and Klaviyo have secured commitments and investments from major industry players. Such commitments are rare in a market flush with opportunities, highlighting the cautious sentiment prevailing in the current market environment.
In contrast to the cash-burning companies that dominated the 2021 IPO boom and subsequently struggled, Arm, Klaviyo, and Instacart emphasize their profitability. With rising interest rates and inflation, investors are becoming more risk-averse and seeking companies that can generate consistent profits.
This shift in investor preferences is evident in the plummeting stock prices of companies like Bird and WeWork. Bird, once valued at $2.5 billion, is now valued at only $11 million, while WeWork’s market capitalization has fallen to around $270 million from its previous $40 billion valuation in the private market.
Don Clark contributed reporting.
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