In the year’s most significant initial public offering (IPO), British chip designer Arm made its debut on the Nasdaq stock exchange, capturing the attention of investors, tech leaders, bankers, and startup founders eager to gauge its performance. Arm’s IPO outcome could provide valuable insights into the broader IPO landscape.
Arm’s IPO marked a pivotal moment in 2023, a year characterized by a scarcity of IPO activity. Owned by SoftBank, the chip designer priced its shares at $51 each, successfully raising $4.87 billion and achieving a valuation of $54.5 billion. Arm’s unique position in the tech industry as a provider of essential processor core blueprints to major companies like Apple, Google, Samsung, and Nvidia adds intrigue to its public market debut.
While Arm’s chip designs have primarily found their place in smartphones, the company aims to capitalize on the surge in artificial intelligence (AI) by supplying advanced computer chips required for AI development. SoftBank, which acquired Arm for $32 billion in 2016, is poised to maintain a majority stake in the company post-IPO.
Notably, in 2020, Nvidia attempted to purchase Arm from SoftBank for $40 billion, but the deal eventually collapsed due to opposition from regulators and customers.
IPO Climate in 2023:-
The IPO landscape in 2023 has been remarkably subdued, with many investors approaching new tech IPOs with caution or skepticism. Two other companies Instacart and Klaviyo, are set to go public soon. However, their valuations are notably lower than previous private market assessments.
Instacart, the grocery delivery company, has set an IPO price range that values it between $8.6 billion and $9.3 billion, far below its previous private market valuation of $39 billion. Similarly, Klaviyo, a marketing technology firm, initiated its IPO with a valuation range of $7.7 billion to $8.3 billion, slightly lower than its last private valuation of $9.5 billion.
Building Investor Confidence for Arm’s IPO and shares.:-
In a bid to instill confidence in potential investors, many companies going public have taken steps to demonstrate their appeal as investments. Arm, for instance, revealed that it had secured $735 million in “stated interest” from key partner companies like Nvidia, Google, Samsung, Apple, and Intel, all indicating their intent to purchase Arm shares.
Instacart also adopted a similar strategy, selling $175 million worth of IPO shares to PepsiCo. Klaviyo, on the other hand, attracted investment from BlackRock and AllianceBernstein as “cornerstone” investors ahead of its IPO. Such commitments and partnerships are less common in a thriving market but serve to bolster investor trust during times of uncertainty.
Profitability Takes Center Stage:-
With rising interest rates and inflation, investors have become more risk-averse, shifting their focus from fast-growing but unprofitable companies to those with proven profitability. This shift reflects a change from the trend seen in the boom year of 2021 when many cash-burning companies went public only to see their stock prices plummet afterward.
For instance, Bird, once a $2.5 billion scooter company, now has a valuation of just $11 million. WeWork, originally valued at $40 billion in the private market, now trades with a market capitalization of approximately $270 million.
Arm’s IPO on the Nasdaq stock exchange in 2023 carries significant implications for the broader IPO landscape. While the year has seen a dearth of IPO activity, companies like Instacart and Klaviyo are attempting to navigate the challenging market conditions. Investor confidence remains a critical factor, with profitability and strategic partnerships taking precedence in an environment marked by caution and skepticism.
As Arm’s IPO performance on the public market unfolds, it will provide valuable insights into the sentiment of investors and potentially influence the decision-making of other companies considering their own IPOs in the coming months. The world watches closely to see if Arm’s warm welcome can signal the end of the IPO chill that has persisted in 2023.