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Shares of recently listed technology groups Arm and Instacart have fallen by more than a fifth from their highs, raising a warning about the environment for new listings.
The early success of the first major tech initial public offering in nearly two years has excited Silicon Valley investors who have been waiting for a slew of privately held tech startups to debut.
However, Instacart’s stock price fell back to the IPO price on Wednesday afternoon, after rising as much as 40% in early trading the day before. The stock hit a low of $29.96 and ended the day down 11% at $30.10, just 10 cents above the IPO price, according to Bloomberg data.
Meanwhile, shares of chip design company Arm have fallen more than 4% for four consecutive days since rising 25% on the day it went public. The stock closed at $52.91 per share on Wednesday, 4% above the offering price.
A senior IPO lawyer said he was optimistic about the prospects of further listings in the coming months, especially in 2024, but said the biggest threat to the recovery would be the underperformance of share prices of recently listed groups.
During last year’s market downturn, recently listed groups performed even worse than the broader market, with weak performance often cited as the reason for a lack of new deals.
“Investors will say, ‘Why should I buy it at the IPO if I can buy it at a 20% discount in a few months?'” the lawyer said.
Marketing software group Klaviyo, which also went public on Wednesday, saw its shares rise 32% on the debut but lost some early momentum in late trading. Nonetheless, the group ended the day up 9% after selling shares above its initial price range.
Klaviyo sold 19.2 million shares in the IPO, raising $576 million. The IPO values the company at US$7.6 billion, or US$9.2 billion on a fully diluted basis. Based on Wednesday’s closing price, the company’s market capitalization was $8.3 billion, with a fully diluted market capitalization of $10.1 billion.
While Klaviyo isn’t as much of a household name as consumer-facing groups like Instacart, it’s closely watched within the tech industry because its software-as-a-service business model puts it closer to many other potential IPO candidates.
“It’s a great time for the business to get out there,” said Klaviyo Chief Financial Officer Amanda Whalen. “We’ve shown strong growth momentum . . . We have a long road ahead of us. track.”
BlackRock and AllianceBernstein have both pledged to invest up to $100 million in the IPO to support the offering.
After years of pursuing rapid revenue growth at all costs, investors have recently placed more emphasis on the profitability of IPO candidates, which Whalen said is good for companies.
“We’ve been focused on having really strong unit economics . . . so one of the great things is that this isn’t a huge shift,” Whalen said. “We’re glad people are appreciating it now.”
Klaviyo was founded in 2012, the same year as Instacart, and was considered an IPO candidate before the market turned in 2021. The company, co-founded by Andrew Bialecki and Ed Hallen, provides marketing software to retailers, gyms and large enterprises, managing their data and helping them create customized marketing campaigns for their clients.
Instacart currently trades at about a quarter of the $39 billion private valuation it reached in 2021 at the height of the coronavirus pandemic. Klaviyo, meanwhile, debuted close to a peak valuation of $9.5 billion in 2021.