The U.S. IPO space is in acceleration mode going into the last quarter of 2023, as a rush of new initial public offerings stirs up the market.
Eighty-four new IPOs have already been priced in 2023. That’s a 31.3% gain compared with 2022, according to Renaissance Capital. And those IPOs account for $16.7 billion raised to date, a 156.9% gain from 2022.
Formal IPO filings are up in 2023, as well, with 139 IPOs filed through Oct. 10, Renaissance notes. That’s up 21.9% from 2022.
Those numbers still reflect a dramatically lower rate than in 2021, however, when 416 companies issued traditional IPOs valued at $155.8 billion on U.S. exchanges, Ernst & Young reports.
Despite the massive gap, market experts believe the worst days for the IPO market are in the rearview mirror. That case continues to be made as inflation recedes, equities rebound, commodity prices stabilize and interest rate increases look as if they may be hitting a peak.
Geopolitical upheaval in the Middle East aside, “recent improvements in market sentiment and the uptick in follow-on activity could be a harbinger of brighter days in the IPO market later this year or next year,” says Mark Schwartz, EY Americas IPO and SPAC advisory leader.
Even share-price performance is showing signs of life for IPOs. In September, the entire U.S. IPO market fared better than the S&P 500, concluding the month down 2.8% versus a 4.9% tumble for the benchmark stock market index.
In the meantime, there are a few burgeoning IPO stories bubbling to the surface in the autumn of 2023, with these four up-and-comers and five recent IPOs at the top of investors’ minds:
|Birkenstock Holding Ltd. (ticker: BIRK)
|$9.2 billion to $10 billion
|Chime Financial Inc.
|Maplebear Inc. (Instacart) (CART)
|Arm Holdings PLC (ARM)
|Kenvue Inc. (KVUE)
|Nextracker Inc. (NXT)
|Gamer Pakistan Inc. (GPAK)
* Estimates for Birkenstock, Chime, Stripe and Reddit; the others are already trading on the stock market.
2023 Upcoming IPOs
Birkenstock Holding Ltd. (BIRK)
At press time, German footwear giant Birkenstock is readying its IPO, scheduled for Oct. 11, at an estimated price range between $44 and $49 per share. At the high end, Birkenstock would have a valuation of nearly $10 billion. The company is offering 32.3 million shares during the IPO, and it hopes to raise $1.58 billion. The exact IPO price will be announced after the closing bell on Oct. 10.
The company has annual revenues of $1.45 billion, with a steady record of growth leading up to the IPO.
“From 2020 to 2022, BIRK experienced a 71% surge in revenue,” says Seth Farbman, chairman and co-founder of Vstock Transfer in Woodmere, New York. “In the current fiscal year, the nine months leading up to June saw 21% revenue growth compared to the same period in 2022, (and) pretax profit for this period stood at $161.7 million, which signifies a healthy bottom line.”
“We’ve seen other footwear brands, including Allbirds and On Holding, grappling post-IPO due to fluctuating market dynamics. Other companies like Arm, Instacart and Klaviyo are experiencing share price downturns post-listing.” – Seth Farbman, co-founder of Vstock Transfer
Leading up to the IPO, major investors like Financiere Agache and Baron Funds have shown “great interest” in Birkenstock, Farbman says. “Overall, commitments from key players are nearing the ballpark of $1.13 billion.”
The valuation of Birkenstock appears to be on the higher side, even surpassing other renowned footwear brands. “There is caution around the valuation, especially considering it was valued at just $4.3 billion in early 2021,” Farbman adds. “Birkenstock would need to generate substantially higher revenue.”
Another concern for BIRK is the IPO market and its unpredictable nature, especially of late.
“We’ve seen other footwear brands, including Allbirds and On Holding, grappling post-IPO due to fluctuating market dynamics,” Farbman says. “Other companies like Arm, Instacart and Klaviyo are experiencing share price downturns post-listing.”
Investors have also expressed concerns about Birkenstock’s capability to attract new customers.
“That’s especially the case in the current economic climate, where many prioritize essentials over discretionary spending,” he adds. “It will be interesting to see how the company navigates in and after the IPO.”
Chime Financial Inc.
This online bank targeting young adult customers was expected to go public last year at a valuation approaching $25 billion, but it delayed its IPO move in a down market. Fintech stocks have bounced back hard this year, with Ark Fintech Innovation ETF (ARKF) up 35.5% year to date as of Oct. 9, making a debut by the end of the year realistic for Chime.
Chime has carved an impressive niche in the digital banking sector, as its app is increasingly used by regional banks to offer banking products and services at more affordable prices, which appeals to budget-minded consumers. Chime will have to distinguish itself, though, from the student-loan-focused SoFi Technologies Inc. (SOFI), which has an $8 billion market cap, as college loan repayments resume.
Chime could reach a higher valuation if it can persuade Wall Street to value the company as a fast-growing tech company with a high multiple rather than as a bank, which doesn’t command the same market premium.
Stripe’s revenue reportedly hit $14.4 billion in 2022, up from $12 billion in 2021, and its profit estimate for 2023 is $100 million, following an $80 million loss in 2022. Those numbers are more than enough to make the online payment processing firm a prime IPO candidate. Recent estimates have put its valuation at $50 billion, but that’s roughly half off its peak private market valuation of $95 billion in 2021.
San Francisco-based Stripe doesn’t currently have an IPO on its calendar, but company executives have made it clear that they plan to make a decision on going public in 2023.
Even so, there doesn’t seem to be a sense of urgency regarding an imminent IPO. Earlier this year, Stripe raised $6.5 billion in private funding that provided liquidity to current and former employees, taking some of the urgency out of holding an IPO for reasons related to employee stock options.
As a result, founders Patrick and John Collison may hold off on an IPO until 2024 as Stripe gains a reputation on Wall Street as a company that really doesn’t need to go public, given its access to deep-pocketed private investors who’ve already invested in Stripe and would likely continue to do so for the foreseeable future.
As far as social media platforms go, they don’t get much bigger than Reddit. The company boasts an estimated 56 million active users per day.
Valued at $10 billion in 2021, Reddit saw financial services giant Fidelity Investments slash its valuation to $5.5 billion as of May 31, 2023.
Reddit filed its IPO paperwork with the Securities and Exchange Commission in December 2021, but it has held off on setting any public offering date. Company officials had expected to schedule its debut sometime in the second half of 2023, but as of October, all is quiet on the Reddit IPO front.
Industry observers point to a massive Reddit unpaid moderators strike, which has helped gum up the works as far as an IPO goes. Until CEO Steve Huffman finds a path in aligning company moderators with some kind of balanced compensation system to put the unrest to bed, Reddit’s IPO plan won’t easily take flight.
On the upside, Huffman has greased the skids for a future IPO by streamlining the company this summer, slashing 5% of its workforce and cutting future hiring by two-thirds.
A simultaneous move to charge companies for using Reddit’s data isn’t exactly popular outside the company, but it’s another sign that Reddit is doing what it can to entice investors for when its IPO finally appears on the horizon.
Updates on Recent 2023 IPOs
Maplebear Inc. (Instacart) (CART)
Instacart, officially known as Maplebear Inc., made its public debut on Sept. 19 and shares have trended downward ever since, falling by 18% since its first day of trading (the stock closed at $24.66 on Oct. 9.)
Instacart is trading under the symbol CART as common stock on the Nasdaq Global Select Market.
The company’s service mission is simple. It enables freelance contractors to pick from grocery shopping list requests in their area, fulfill the lists and deliver them to customers. The company says its sales for the first half of 2023 stood at about $1.5 billion, ahead of the $1.2 billion it achieved in the same period of 2022.
CART started trading at $30 per share on its IPO day, with shares climbing to $42 before fizzling quickly.
Working against Instacart is the growing sentiment that consumers are snapping their wallets and pocketbooks shut in a downbeat economy.
“Our survey data indicates that consumer demand for online grocery delivery has materially tapered in recent months,” says Gordon Haskett stock analyst Robert Mollins, in a new research note. A rising tide of workers resuming their office commutes should also lead to more people stopping off at physical grocery stores on their way home from work, Mollins notes.
With Amazon.com Inc. (AMZN) and Walmart Inc. (WMT) offering their own home grocery delivery services at steeply discounted prices, Instacart may lose market share that it likely won’t win back, making the stock loaded with “too much risk and not enough catalysts,” Mollins adds.
British chip designer Arm filed IPO paperwork with the SEC in late August and started trading on the Nasdaq Global Select Market on Sept. 14.
The early going hasn’t been ideal for ARM, and the stock is trading close to its IPO price of $51 per share. The stock had immediately risen by 25% on its IPO date, but the stock has faced tough sledding of late.
Part of the issue is lousy timing, as ARM went public at a time when investors were reducing stock positions to take advantage of high Treasury yields. Not helping matters is ARM’s soaring valuation, as the stock is trading at a price-to-earnings ratio, or P/E, of more than 100 times its latest fiscal year profit.
On the upside, analysts at both Deutsche Bank and BofA Securities have opened with favorable price targets on the stock, at $60 and $65 per share, respectively. Other analysts are following suit, noting the company’s massive size and scope in its industry as a big positive.
Arm is “successfully leveraging its significant developer ecosystem (15 million-plus software developers) and near 100% market share in smartphones to move into the automotive, industrial/IoT, and data center segments of the market,” J.P. Morgan analyst Harlan Sur stated in an Oct. 9 research note.
Kenvue has struggled out of the gate since its early May IPO. Company shares have fallen 20.6% in the past three months as of Oct. 9. That’s somewhat surprising for a consumer health company that owns Band-Aid and other top household brands.
Kenvue isn’t a traditional IPO; the company has successfully untangled itself from Johnson & Johnson (JNJ) after an oversubscribed exchange offer that resulted in only 23.8% of J&J shares being eligible to be exchanged for KVUE stock. Kenvue joined the S&P 500 on Aug. 25 and was vetted as a dividend aristocrat by S&P Global, which runs the dividend aristocrats index.
At roughly $19 per share in early October, Kenvue is trading behind its $22 IPO price. Its prospects appear solid, however, given the company’s robust balance sheet, stable dividend status, ample cash flow and high-profile brand-name products.
Still, Kenvue’s product stability also remains one of its biggest risks. There’s little room to innovate and grow revenues when your products – think Tylenol and Listerine – remain unchanged. Consumers aren’t likely to buy more of these products than they need, and new markets to sell these products are in short supply. Plus, big chain retailers like CVS and Costco have done a good job of marketing discounted white-label brands next to Kenvue’s name brands on store shelves.
That scenario won’t get better anytime soon, leaving Kenvue little wiggle room to grow in the consumer products marketplace.
This company makes technology that lets solar power plants track the movement of the sun, tilting solar panels to maximize their exposure to electricity-generating rays.
The stock has been burned of late, however. Shares are trading at $34.12 per share as of Oct. 9, falling from $43.13 per share as of Sept. 1, a price that was well ahead of its $24 entry price in its early February IPO. NXT got a 6% boost from June to August, buoyed by solid first-quarter financial results.
Poor share performance in September and in the first week of October has largely wiped those positive numbers off the board. NXT shares are down 19.9% over the past month.
NXT may be feeling the negative of solar stocks in general during the past few months. The benchmark Invesco Solar ETF (TAN) is down 31% over the past three months, a trend that Truist analyst Jordan Levy describes as being a “broad-natured” sell-off that should swing back to positive territory as investors swoop in to pick up sector bargains.
Also on the upside, UBS kicked off its coverage of NXT as a “buy” with a $50 price target in early October, which should help boost momentum.
Nextracker also seems to be getting a boost from the extension of tax credits for solar-plant builders and operators under last year’s Inflation Reduction Act, as its sales rose 22% in 2022 and its fiscal Q1 2024 revenues were $479 million, a 19% gain on a year-to-year basis.
Gamer Pakistan Inc. (GPAK)
Esports gaming company Gamer Pakistan, trading on the Nasdaq as of Oct. 9, is the first-ever Pakistani company to be listed on a U.S. exchange. Its IPO date certainly had its ups and downs, with the company raising $6.8 million in its IPO with the sale of 1.7 million stock shares priced at $4 apiece. With more than 25 million shares outstanding, GPAK had an initial valuation of $102.4 million.
While early trading saw GPAK shares rising by 5%, shares plunged to finish 44.3% below the IPO share price by the end of the day, at $2.23.
Esports are a big deal in Pakistan, where 65% of the population is below the age of 30. Since 80% of Pakistanis own mobile phones, the esports model, which focuses on handheld devices for its gaming inventory, should resonate with its ideal demographic.