The highly anticipated debut of Arm Holdings Plc. is poised to revive the dormant initial public offering (IPO) landscape for technology companies. However, not all upcoming deals in the pipeline will attract the same level of investor interest.
Analyst Matthew Kennedy from Renaissance Capital, a renowned IPO tracking firm, suggests that Arm’s impressive first-day performance serves as a much-needed boost to the tech IPO market. As the largest tech IPO since Uber in 2019, its success has triggered optimism among investors.
In the coming week, Instacart CART, a prominent grocery-delivery service, and Klaviyo KVYO, an email marketing-automation company, are set to go public. Both firms hold multibillion-dollar valuations as privately held companies. However, it’s worth noting that Instacart has notably lowered its valuation to around $9 billion. In comparison, it had reached a high valuation of $39 billion during its 2021 funding round.
Kennedy emphasizes that while the tech market is gradually reopening, prospective tech IPOs will need to exhibit a combination of growth, profitability, and an attractive valuation to appeal to investors. Renaissance Capital, which has been anticipating a resurgence in the IPO market for the past few months, believes that the market is finally showing signs of gaining momentum as we approach the fall season.
According to Kennedy, the tech IPO market has been relatively subdued since 2022. In that year, Credo Technology was the sole U.S. venture-backed tech company to go public, compared to 42 venture-backed IPOs in 2021. Furthermore, the most recent tech unicorn to make its public debut was Samsara Inc. in December 2021—a unicorn being a company with a valuation surpassing $1 billion.
The successful launch of Arm Holdings Plc. has reignited optimism within the tech IPO landscape. As the IPO market gains traction and tech companies seize the opportunity to go public, investors are increasingly focused on factors such as growth, profitability, and valuation when considering these new offerings.
SoftBank’s Arm: A Pioneer in Chip Design
Arm, a renowned chip design company, stands out in the IPO landscape with its long and successful history. Founded in 1990, Arm’s energy-efficient chip designs have powered mobile phones since the mid-1990s. Despite reporting flat revenue of $2.7 billion for fiscal 2023, Arm is eager to explore the vast potential of artificial intelligence and machine learning. With the ability to accelerate crucial components of algorithms for future AI applications, Arm believes it can unlock further opportunities in this rapidly evolving field.
A Glimpse at Arm Ahead of its IPO
While Arm captures attention as it prepares to go public, Reddit, the popular online discussion forum, also emerges as a potential IPO candidate later this year. However, a strike by its content moderators disrupted its plans earlier this summer. Reddit confidentially filed for its IPO in late 2021, but the market freeze halted its progress.
Fortunately, this stagnation in the venture capital world may soon come to an end, marking a turning point for investors. As opportunities arise, investors will need to carefully analyze each prospectus, considering the contrasting factors of younger companies with higher potential but increased risk, and established yet slower-growing companies like Arm.