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Shot in the IPO Arm?
The Wall Street debut of the chip designing giant could usher in a new wave of offerings from so-called unicorns. Next up? Instacart.
It might finally once again be unicorn watching season on Wall Street. The initial public offering market has been a veritable snoozefest so far this year following an almost cricket-like 2022.
Only 71 companies went public last year, according to data from Renaissance Capital. And they raised a mere $7.7 billion. That’s down from the more than 200 companies generating nearly $80 billion in proceeds in 2020 and the almost 400 companies raising more than $142 billion in the frenzy of 2021. So far this year, there have been just 73 IPOs, raising $14.8 billion.
But that was before Arm, the mobile chip design giant owned by SoftBank, made its debut Thursday. Arm raised nearly $5 billion from the sale of its stock. At the offering price, the company was worth more than $54 billion. Arm is the first major tech IPO of 2023 and one of the biggest in the past few years.
Shares of Arm got off to a solid start, rising about 13% in early trading to around $58 a share. That’s a much needed boost for SoftBank, which has had some notable investing flops lately. Can you say WeWork?
So what’s next? Investors will have two more unicorns (private companies with valuations above $1 billion) to consider buying next week. Grocery delivery leader Instacart is set to go public next week, although at a proposed valuation of a little more than $9 billion. That’s a discount from its most recent valuation of $12 billion when it last raised money and a far cry from the peak value of $39 billion that Instacart fetched during early 2021 back when everyone was shopping online and getting food delivered due to Covid pandemic fears.
But Instacart has impressive backers, such as venture capital giants Andreessen Horowitz and Sequoia Capital and mutual fund powerhouses Fidelity and T Rowe Price. Instacart also has the name recognition among average retail investors and consumers to possibly drive interest in the stock. Yes, revenue growth is slowing. But Instacart is profitable which makes it a rarity among unicorns.
Also on tap next week? E-commerce data software leader Klaviyo, which is looking to go public at about an $8.4 billion valuation. The company has posted strong sales growth and is profitable. It also has investments from Canadian online commerce giant Shopify and asset management colossus/iShares owner BlackRock.
So if Arm, Instacart and Klaviyo do well in their debuts, then the IPO window that has seemingly been Krazy Glued-shut for the past year and a half might finally pry open. But as always, investors will need to be careful. Buzzy IPOs often enjoy big pops, only to flame out as reality sets in about how difficult it can be to continue putting up lofty numbers for Wall Street types who are never satisfied. Just ask investors in Coinbase, Robinhood, Rivian, DoorDash and numerous other unicorns from the 2021 IPO class that have plummeted since going public.