The recent successful initial public offerings (IPOs) of SoftBank-backed chip designer Arm Holdings (Arm), together with several other high profile companies that have listed or intend to, such as Reddit and Cava Group, may augur a return to form for Wall Street.
Wall Street bankers are reportedly optimistic that US listings will pick up as a crop of new IPOs hint at a broader recovery.
And with Arm’s stock soaring nearly 25 percent since its $65bn Nasdaq debut, before eventually settling down 4.5 percent to $60.75, after trading as high as $69 last Friday (week ending September 15th 2023) the prevailing mood did indeed lift hopes of an end to the drought that has beset the US IPO market.
Dr Linda Yueh, Adjunct Professor of Economics at London Business School, said on the Business Briefing programme (SiriusXM, September 15) that arguably a better measure of a return to form for the US stock exchange could be the upcoming IPO for Instacart, the American online delivery company that operates a grocery delivery and pick-up service in the United States and Canada.
“If you look at Arm, it used to be listed on the London Stock Exchange 25 years ago. Softbank Group then bought it. Therefore, Arm is a mature company has been brought back to the market,” said Dr Yueh.
Instacart is by contrast a startup company and is therefore arguably better representative of those companies that have suffered big valuation drops since 2021, and the retreat by capital investors who have been spooked by an uncertain economic picture.
“So if there is appetite for Instacart that would suggest that IPOs for startups may well be back,” says Dr Yueh.
Dr Yueh notes that the price range for Instacart’s IPO valuation sees the company valued at a quarter of its $39bn private valuation of just two years ago.
“In 2021 Instacart was a celebrity company with sizeable market valuation. If you see a valuation drop by three quarters, that is a lot to stomach.”
Dr Yueh points to a perhaps related and interesting aspect to the upcoming Instacart IPO – its relationship with its current Venture Capital (VCs) investors. “VCs would usually look to exit after an IPO, but its current investors, Sequoia and D1 own nearly 30 percent of the company and plan to become cornerstone investors, agreeing to buy up to $400m of Instacart stock at IPO alongside three others. This seems designed to support the company’s stock price, which is not the usual way VCs would look to behave and tells you how challenging the market is. That said, if it trades well then the IPO could well open the door to more interest in IPOs.”