It is very quiet in the world of IPOs recently. Around Thanksgiving, one would normally expect a surge of large IPOs wanting to go public before the Christmas season. According to Don Short, the CEO of InvestX, "anything that is going to come out between now and the end of the year should be happening presently". However, companies are not seizing the opportunity. Matt Kennedy, from Renaissance Capital, believes that's because the bad companies can't go public, and the good companies don't want to try their luck in a poor market. The poor stock performance in October, high-enduring interest rates, weak after-market performance from the recent IPOs this summer, as well as the expectation of diminished valuations, seem to be causing many IPO applicants to reconsider or delay their debuts. The continuous upturn of the 10-year Treasury yield was an especially driving force in stunting the IPO market, according to Greg Martin from Rainmaker Securities - "that was a major dampener".
Waystar, which was supposed to begin its roadshow last week, reportedly held off on launching its IPO until December or into 2024. Recently, the Wall Street Journal reported that Panera Bread has laid off 17% of its corporate staff in anticipation of their possible IPO next year. Additionally, Klarna, another likely IPO prospect, informed CNBC that they have no immediate plans to go public, despite their last funding round being valued at $6.7 billion - a dramatic decrease from their previous $46 billion valuation.
Shein, the Chinese fast-fashion giant, has yet to decide on a timeline for their IPO or its valuation, though sources familiar with the company's plans indicated to Bloomberg that they were planning to seek at least $80-90 billion. However, their most recent funding round valued them at $66 billion.
Typically, the most prominent IPOs are seen in late November and December. Rivian, the largest IPO of 2021, priced on Nov. 9, 2021 and started trading the next day. Hertz, Braze, Sweetgreen, and Allbirds all released public offerings in November 2021 as well, with Hertz raising $1.3 billion, Braze $500 million, Sweetgreen $364 million, and Allbirds $303 billion. In December 2020, Airbnb raised $3.5 billion and Doordash raised $3.4 billion, while Sotera Health and Miravai Life Sciences raised $1.1 billion and $1.6 billion, respectively.
Unfortunately, the trend of productive end of year IPOs has regressed since 2022, as only $7.7 billion was raised that year - the lowest number in decades, whereas a normal year would see at least $50 billion. As of yet, 96 IPOs have raised $18.8 billion in 2023, per Renaissance Capital.
It wasn't beneficial that the current cluster of IPOs have not been successful.Short told me that he heard the people who were queuing after Instacart's IPO in September backing out and everything going silent. Out of this year's greatest IPOs, Arm is slightly lower than its debut value, and Kenvue, Birkenstock and Instacart are below their original offering prices, according to Renaissance Capital.Klaviyo, a marketing automation firm publicised in September, has a stock cost of 8% less than its opening price of $30 after its financial report on Tuesday. Restaurant chain Cava Group, which went public in June, trades above its initial offering price of $22, yet the stock was as high as $57 in the initial month after going public. As a result, the stockholders who purchased after the debut are at a disadvantage in the present share price, at $31.The Renaissance Capital IPO ETF (IPO), an accumulation of approximately 60 of the biggest IPOs in the previous two years, has gone down 17% from its July peak to October trough, with S&P also showing a similar trend.
Kennedy noted that the market is not completely shut down, and that there are still opportunities for firms to go public in December, especially if the current rally holds. He highlighted a few examples of companies still in the pipeline, including BKV, Smith Douglas, and American Healthcare REIT, which have all recently updated their prospectuses and/or financials. Furthermore, American Healthcare REIT recruited Morgan Stanley as an underwriter this week.
As time passes, the IPO interest in Reddit and Stripe dwindles. "Presently, the AI sector is stirring up a lot of action, but none of the companies are mature enough to go public yet," noted Short. "There's a lot of entities still losing money, but there is not a lot of investor funds available for anything that isn't AI-related at the moment." This is the major cause of why Arm is one of the few IPOs that didn't take a sharp dive. "Anything associated with AI is in a different ballgame, and Arm is reaping in some of the benefits," remarked Short. Arm recently gave their debut performance as a publicly-traded company. Despite offering an uninspiring outlook, their shares dropped by 7% on the next trading day.
IPO candidates have three potential paths: 1) go public, with a likely significant discount, 2) remain private and hope their venture capital backers will keep providing financing, or 3) merge or fold. Greg Martin from Rainmaker Securities, who operates one of the leading trading platforms for pre-IPO firms, informed me those with the most favorable position are those who can fund their activities with their own money - a limited group. He said, "The private financing markets are worse than the public ones, so you don't want to be running out of cash now," noting he's observed much cheaper prices for private stocks compared to two years ago. That puts the 800+ tech unicorns (businesses valued at over $1 billion) in a delicate situation. Martin observed, "We're beginning to see unicorns die. There's a lot of lower-quality unicorns with negative EBIDTA [cash flow], and there's hardly any demand for them in the public markets, which means the M&A route is increasingly likely for several companies."
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