Reddit and Astera Labs broke the tech IPO drought, with Morgan Stanley leading both offerings, signaling a potential revival in the market. The IPOs brought in around $37 million in fees for the bank, providing a much-needed boost to its investment banking unit. The successful debuts of these companies could pave the way for more tech IPOs in the coming months, with potential benefits for investment banks and opportunities for follow-on offerings and acquisitions.
The recent tech IPOs of Arm, Instacart, and Klaviyo have received a lackluster response from Wall Street, indicating a valuation problem in Silicon Valley. While investors who bought at the IPO price made money if they sold immediately, most others are in the red. This trend raises concerns about valuations and how IPO and equity markets are pricing these companies. Despite the lack of excitement, some companies, like Instacart, prioritize providing liquidity to employees rather than optimizing pricing. The combination of the Covid delivery boom, low interest rates, and a bull market in tech has driven companies to unsustainable heights, and now they must face the consequences. Profitability and control of their own destiny are becoming more important, but during the record IPO years of 2020 and 2021, valuations were based on future sales rather than potential earnings. The recent IPOs are performing relatively well given the skepticism in the market, but it remains to be seen how these companies will fare in the coming weeks.
Grocery delivery startup Instacart, data and marketing automation company Klaviyo, and chip designer Arm have filed for stock market debuts, marking the return of tech IPOs after a 20-month hiatus. The performance of these companies in the public market will serve as a test of investor excitement for new opportunities. Instacart, which has seen a significant valuation haircut, reported revenue growth of 15% in the latest quarter and has managed to turn a profit for five straight periods. Klaviyo, with a valuation of $9.5 billion, is growing faster than Instacart, with revenue in the second quarter climbing 50%. Arm, owned by SoftBank, reported $524 million in net income on $2.68 billion in revenue in its fiscal 2023. The success of these IPOs could encourage other tech companies to go public in the fourth quarter.
The collapse of Silicon Valley Bank (SVB) was a "Lehman moment" for the technology industry, according to a top Goldman Sachs dealmaker. SVB was considered a reliable source of funding for tech startups and venture capital firms. The future of SVB remains uncertain, even though deposits were ultimately backstopped by the government and SVB's government-appointed CEO attempted to reassure clients that the bank remained open for business. The SVB collapse has also raised questions over the potential consequences for other banks, with SVB being far from the only lender that has come under strain. Marriott also addressed tech IPOs and their outlook for 2023.
