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Shares in recently listed tech groups Arm and Instacart have fallen more than a fifth from their highs, sounding a note of caution on the environment for new listings.
The early success of the first big tech initial public offerings for nearly two years has enthused Silicon Valley investors, who have been waiting to list shares in a large number of privately held tech start-ups.
However, shares in Instacart fell back to their offer price on Wednesday afternoon, having climbed as much as 40 per cent in early trading the previous day. The stock touched a low of $29.96, according to Bloomberg data, and closed down 11 per cent for the day at $30.10 — just 10 cents above its IPO price.
Chip designer Arm, meanwhile, has fallen by more than 4 per cent for four consecutive days since an initial 25 per cent jump on the day of its public debut. The stock closed on Wednesday at $52.91 per share, 4 per cent above its offer price.
One senior IPO lawyer said he was optimistic about the prospects for further listings in the next few months, and particularly in 2024, but said the biggest threat to the revival would be poor share price performances among recently listed groups.
Recently listed groups performed even worse than the broader stock market during last year’s market downturn, and the weak performance was often cited as a reason for the lack of new deals.
“Investors would say ‘why should I buy it in an IPO if I can get it at a 20 per cent discount in a few months?’,” the lawyer said.
Marketing software group Klaviyo also listed on Wednesday, and lost some of its early steam in late trading after climbing as much as 32 per cent at its launch. The group nonetheless ended the day with a 9 per cent rise after selling shares above its initial price range.
Klaviyo sold 19.2mn shares in the IPO, raising $576mn. The IPO valued the company at $7.6bn, or $9.2bn on a fully diluted basis. At its closing price on Wednesday, the company had a market capitalisation of $8.3bn, or $10.1bn on a fully diluted basis.
Although less of a household name than consumer-facing groups such as Instacart, Klaviyo was closely watched within the tech industry as its software-as-a-service business model makes it a closer comparison for many other potential IPO candidates.
“Going out right now was great timing for the business,” said Amanda Whalen, Klaviyo’s chief financial officer. “We’ve demonstrated strong growth . . . and have a long runway ahead of us.”
BlackRock and AllianceBernstein had each committed to invest up to $100mn in the IPO, lending support to the offering.
After years of focus on rapid revenue growth at all costs, investors have recently put a greater emphasis on profitability among IPO candidates, which Whalen said had worked in the company’s favour.
“We’ve always been focused on having really strong unit economics . . . so one of the great things is that was not a massive pivot,” said Whalen. “We appreciate that that is appreciated right now.”
Klaviyo was founded in 2012, the same year as Instacart, and had been regarded as 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 build bespoke campaigns for customers.
Instacart is now trading at about a quarter of its peak private valuation of $39bn, achieved at the height of the coronavirus pandemic in 2021. Klaviyo, meanwhile, debuted near its peak valuation of $9.5bn in 2021.
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