Over the past two weeks, there have been three closely watched initial public offerings, and the results have been decidedly mixed. While I’d like to tell you that those deals pried open the IPO window, it feels more like someone hurled a brick through the glass. You can get through the window, but you might get hurt.
This past week,
Instacart
(ticker: CART), the grocery-delivery firm officially known as Maplebear, priced at $30 a share, opened at $42, and then began sinking. At Thursday’s close, it was 65 cents above the IPO price.
Klaviyo
(KVYO), a marketing software company, also priced at $30, than started trading at $36.75; the stock at Thursday’s close was below $34.
Meanwhile,
Arm Holdings
(ARM), the United Kingdom–based semiconductor design house that kicked off this mini tech IPO parade earlier in the month, is now hovering right around its IPO price and 20% below its first day close.
So, while it’s nice to see some appetite for new offerings, these three debuts have hardly produced the kind of excitement that venture firms and investment bankers wanted to see.
“We knew these would be important milestones for the gradual reopening of the IPO market,” says Matt Kennedy, senior IPO market strategist at Renaissance Capital, which runs the
Renaissance IPO
exchange-traded fund (IPO). But while all three deals priced at or above the high-end of the expected range, in each case, Kennedy notes, the first public investors in the stocks are now losing money.
Lise Buyer, founder and managing partner of Class V Group, a consultancy that guides companies through the IPO process, isn’t expecting a rush to the exits from other start-ups.
“These three successful deals will be a catalyst for boardroom conversations, but it’s not like they will turn on the spigot,” she says. “I expect there will be a few more in 2023, but warming the engines back up after a long break takes several quarters….It’s not 1999 or 2021.”
Recent IPO performance hasn’t helped matters. Goldman Sachs points out that the 2020-21 IPO class had “abysmal performance,” underperforming the Russell 3000 by 48 percentage points in the first 12 months after the IPOs. The worst performers are companies priced at more than 15 times sales, like Arm. Not a single IPO with that valuation level outperformed in the first two years, with an average return that’s 84 percentage points—yes, 84!—behind the market.
That said, here’s a look at deals that could sneak through the window in the months ahead.
Filed deals: The next marquee IPO will be decidedly low tech—the nearly 250-year-old shoemaker Birkenstock. “Our purpose is to empower all people to walk as intended by nature,” the company says in its Securities and Exchange Commission filing. There’s no generative-AI play on this one.
There are only a handful of tech companies with recent public IPO filings: VNG, a Vietnamese provider of gaming, messaging, and digital payments software recently filed. Turo, the car-sharing start-up founded in 2010 and originally called RelayRides, filed for an IPO in January 2022 and has been posting revised versions of its S-1 every quarter since.
Private equity exits: Kennedy says his shortlist of IPO candidates includes a handful of potential returnees. One is BMC Software, a leader in mainframe software now owned by KKR. It originally went private in 2013 for $6.9 billion. Last year, Ingram Micro, an electronics distribution firm, filed confidentially with the SEC for an IPO. Ingram was taken private in 2016 for $6 billion.
Unicorns: Kennedy’s potential IPO list also includes Service Titan, which provides business software for home and commercial contractors; it raised $1.1 billion from a group that includes Sequoia Capital and Battery Ventures. The Palo Alto–based security software company Rubrik is widely reported to be targeting a 2023 IPO. Another potential candidate is Cohesity, Rubrik’s rival in data backup and security.
The IPO that Silicon Valley really wants to see is from Databricks, a cloud-based data analytics and AI software firm. This month, Databricks held a new, $500 million fundraising round at a $43 billion valuation; the deal was led by T. Rowe Price and included
Nvidia
(NVDA), among others. That valuation puts Databricks nearly on par with the public market cap of rival
Snowflake
(SNOW).
But thus far, none of these unicorns have filed public paperwork to go public. So, it could be a while.
Rumored deals: Media reports earlier this year said that ticketing site SeatGeek filed confidentially to go public. Reddit filed confidentially in December 2021. And Axios reported a few days ago that the Australian e-commerce company Rokt plans to go public before year end.
Not yet: At $225 billion, TikTok parent ByteDance is the most valuable venture-backed firm, but it’s hard to see Chinese companies going public in the U.S. anytime soon; that same logic applies to retailer Shein.
There are lots of financial-technology unicorns, some with decacorn status, or valuations above $10 billion. But data from Forge Global, a platform for trading private stock, show sharp valuation declines this year for Chime, Plaid, and Stripe; near-term IPOs from them also seem unlikely.
The most alluring IPO prospect might be SpaceX, Elon Musk’s rocket company, which has been valued at $137 billion in the private market. Barron’s has written that SpaceX could spin off and list its Starlink satellite business. If any part of SpaceX were to go public, it could reach the stars—or blow up on launch.
Corrections & Amplifications
Matt Kennedy is senior IPO market strategist at Renaissance Capital. An earlier version of the story misstated his first name.
Write to Eric J. Savitz at eric.savitz@barrons.com
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