The market for initial public offerings (IPOs) is heating up after being ice-cold for a lengthy stretch.
According to Renaissance Capital, the 30 IPOs that launched in the third quarter of 2023 raised a collective $7.8 billion—more than the entire amount raised in all of 2022.
Nearly two-thirds of these funds were brought in by Softbank-backed chipmaker Arm Holdings (ARM), which raised $4.9 billion in its highly anticipated IPO. Not only did this make the Arm IPO the biggest tech offering since 2019, but it also made it one of the biggest IPOs in U.S. history.
But Arm wasn’t the only big name to go public in the third quarter. Investors were also excited about the IPOs of grocery delivery firm Maplebear (CART), which does business as Instacart, and marketing software company Klaviyo (KVYO). These two companies held their offerings shortly after Arm.
These stocks had solid starts on the price charts in the immediate aftermath of their IPOs, but all three have lost ground in the weeks following. And the share-price struggles have only been exacerbated by each companies’ respective earnings reports.
Despite the negative reactions to earnings and disappointing post-IPO performances, analysts remain overwhelmingly upbeat toward all three stocks, with each maintaining a consensus “buy” recommendation, according to S&P Global Market Intelligence.
What does this signal for IPOs going forward?
The pickup in IPO activity in the third quarter “offers some hope for a rebound in 2024 capital markets activity,” writes Nathan Stovall, director of the financial institutions research team for S&P Global Market Intelligence. However, higher interest rates “could limit risk appetite,” Stovall adds.
Add market volatility, a potential recession and unknown “macro consequences of various wars” to the list of worries that are keeping most institutional money managers “skittish and unwilling to dive headlong into the IPO pool,” says Joe Endoso, president of Linqto, a private equity platform.
The performance of Klaviyo, Arm, and Instacart is evidence that the IPO market recovery still has a way to go, Endoso says. “And that these IPOs were specifically structured to manage price—they involved low floats, cornerstone investors, etc.—makes their malperformance all the more stark.”
Still, there have been 28 IPO filings so far in the fourth quarter, according to Renaissance Capital, just three fewer than all of fourth quarter 2022, indicating the market is rebounding, albeit at a snail’s pace.
