Tech IPO Market Slows as Arm Holdings and Instacart Stocks Dip: Investor Enthusiasm Wanes
The tech IPO market showed signs of slowing down as investor enthusiasm waned, with three significant tech deals experiencing a dip in early trading. This development, combined with broader market conditions, suggests a potential slowdown in investor interest for new tech stocks.
One of the companies affected by this dip was UK-based chip manufacturer Arm Holdings. The stock, which had a strong debut last week, closed nearly 25% above its offering price. However, it has since declined and is currently trading below its issue price.
Another company that experienced a dip in early trading was grocery delivery app Instacart. Though it initially surged by 40% during its first hours of trading, it ended up closing with a 12% gain. Similarly, digital marketing firm Klaviyo had an encouraging start with an initial 20% gain, but it failed to maintain those gains till the end of trading.
Bill Smith, the founder and CEO of Renaissance Capital, commented on these performances, describing them as incrementally positive. He highlighted Klaviyo as the best indicator among the three, suggesting that top-tier software companies with growth, profitability, and attractive valuations can still find buyers. However, other tech unicorns may face delays, with more IPO plans being pushed back to 2024.
Unfortunately, the broader market conditions did not favor these IPOs. The Nasdaq COMP, S&P 500, and IPO index had their worst week since March, as investors grappled with the new normal of higher interest rates.
Adding to the concerns is the potential shutdown of the U.S. government. An ongoing disagreement over spending levels threatens to cause a partial government shutdown on October 1 if no budget agreement is reached by September 30. This situation has caused public concern, as reflected in the increased number of Google queries about a shutdown.
Smith warned that a shutdown would immediately halt the IPO market. He also noted that larger IPOs this year have averaged first-day gains of 18% or more over the offer price but are now only up about 6%. He emphasized the importance of aftermarket returns as an ‘autocorrect feature’ of the IPO market, suggesting that future IPOs will need to be priced at greater discounts to public peers, benefiting investors.
In related news, the Renaissance IPO exchange-traded fund was down by 0.3% on Monday but has seen a 24% gain year-to-date. This is in comparison to the S&P 500, which has gained 12.5%.
Overall, the tech IPO market is facing a potential slowdown as investor enthusiasm wanes. With the recent dip in tech stocks and the uncertainty surrounding broader market conditions, tech unicorns may face delays in going public. The looming potential government shutdown further adds to the challenges faced by the IPO market.
