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Klaviyo, Arm, Instacart shares lose steam after going public.

Instacart, Klaviyo and Arm shares lose steam after highly-awaited IPOs 

 

Shares in recently listed tech companies Arm, Instacart, and Klaviyo showed signs of fatigue in trading on Monday, raising potential concerns about the market’s appetite for new listings. 

The initial success of these tech IPOs, the first significant ones in almost two years, had excited Silicon Valley investors who were eager to list numerous privately held tech startups. 

However, the initial excitement seems to have faded, as the reality of higher interest rates — as indicated by the Bank of England, U.S. Federal Reserve and European Central Bank’s recent policy decisions — appears to be setting in among investors. Markets are digesting the potential impact of higher borrowing costs on the high-growth tech trade — the Nasdaq COMP, S&P 500 (US500), and IPO index all recently had their most challenging week since March. 

The possibility of a U.S. government shutdown is another challenge. A conflict between House conservatives and Speaker Kevin McCarthy, who previously negotiated a spending agreement with President Joe Biden, appears to be growing more difficult to resolve. 

"Investment bankers that help to take companies public are pushing the strong debut of Arm and Instacart ... saying this is a great time to go public," Robert Pavlik, senior portfolio manager at Dakota Wealth told Reuters. "The Street is telling them, hey, this is not the greatest environment." 

 

IPO news: Arm, Klaviyo and Instacart shares’ performance “incrementally positive” 

 

British chip designer Arm Holdings was trading at $54.12 in premarket trading on Tuesday, three dollars above its $51 issue price from last week. The stock had a robust start, closing nearly 25% above its offering price last Tuesday before retracting to current levels. 

Instacart, the grocery-delivery app, trading under its registration name Maplebear Inc. and the ticker CART, was last quoted at $30.50, just above its offering price of $30. The stock had a 40% gain in its initial trading hours before ending the day up 12%

As for Klaviyo Inc., a digital marketing automation firm trading under the ticker KVYO, the firm’s stock was trading at $34.76 in premarket hours, surpassing its $30 issue price. Klaviyo also had a strong start after its IPO, with a 20% gain early in its debut, although it couldn't sustain those gains by the end of the day. 

Bill Smith, the founder and CEO of Renaissance Capital, a company offering IPO exchange-traded funds and institutional research, told MarketWatch that the performance of the three deals could be described as "incrementally positive," while noting that made for a lacklustre headline. 

 

“Last week I pointed to Klaviyo as the best indicator of the three,” Smith wrote in commentary. “Its pricing and trading tell us that best-in-class software companies with growth, profitability, and attractive valuations can find buyers. Other tech unicorns will have to wait, and we’re hearing more and more deals push back IPO plans to 2024.”

 

IPO market: Birkenstock, VNG eye listings 

 

The IPO market has been practically dormant since the stock offering surge during the Covid-19 pandemic came to an end. There haven’t been many successful IPOs since then — some of them have involved well-known brands, like Johnson & Johnson's spinoff of its consumer health division, which includes popular products like Tylenol and Band-Aids under the Kenvue brand. 

Other companies preparing for listings on the U.S. stock market include Birkenstock Holding, a German premium footwear manufacturer, and VNG Corp, a Vietnam-based tech firm. 

Despite the apparent — yet shaky — optimism for new listings, Lise Buyer, the founder and managing partner of Class V Group, a consultancy specializing in guiding companies through the IPO process, doesn't anticipate a sudden wave of startups rushing to go public. 

“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.”

VNG recently postponed its $150 million U.S. IPO until the following year due to volatile market conditions, a source with knowledge of the matter recently told Reuters. The company is still committed to pursuing a listing in New York, with the probable timeframe being the first half of 2024. 

Founded in 2004, VNG, headquartered in Ho Chi Minh City, became Vietnam's first unicorn — a startup with a valuation exceeding $1 billion. The company's businesses include online gaming, payment services, cloud solutions, and Zalo, Vietnam's most popular messaging app. 

The VNG IPO would make it the first Vietnamese tech firm to list in the U.S. 

Birkenstock — a more traditional business and a more recognizable brand — may fare better in the current IPO market, according to some analysts. 

“IPO investors right now are looking for something they’re familiar with, something that is a little bit more predictable in these unusual times,” Renaissance Capital analyst Angelo Bochanis recently told CNBC.

“We haven’t seen a whole lot of very flashy, pre-profitable enterprise software companies go public. What we’re seeing instead are names that people are familiar with, business propositions that can really withstand these tougher environments and Birkenstock fits the bill. I mean, it’s nearly 250 years old. It’s a company everyone knows.”

While it may be a more familiar company, going public in the higher-for-longer interest rate era is still challenging, and recent IPO performance has been disappointing. Goldman Sachs recently pointed out the 2020-2021 IPO class had “abysmal performance,” lagging behind the Russell 3000 index by a significant margin of 48 percentage points during the initial 12 months after going public.  

The worst-performing IPOs were those of companies with price-to-sales ratios exceeding 15 — similar to Arm Holdings. Notably, not a single IPO with that valuation level managed to outperform the market in the first two years, with an average return that trailed the market by 84 percentage points. 

When considering shares for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss.  

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.

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