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The IPO market is starting to heat up. Shares of the microchip designer Arm started trading Thursday on the Nasdaq, and some household names, including Instacart, are waiting in the wings.
STEVE INSKEEP, HOST:
A lot of companies are showing confidence in the economy. In particular, more companies are diving into the stock market, making initial public offerings. An IPO is when a privately held company puts shares of stock up for sale. Companies as old as Birkenstock and as new as Instacart are doing this, which executives do when they think the market is heading up. Here’s NPR’s David Gura.
DAVID GURA, BYLINE: Maybe you haven’t heard of Arm, but it designs high-end microchips that are in smartphones and supercomputers all over the world. And Arm’s shares are now trading on the Nasdaq.
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GURA: When Arm’s CEO rang the opening bell, that signaled the start of what Wall Street hopes will be a string of big-dollar initial public offerings. Arm’s IPO is renewing confidence in the markets after a tough stretch. 2022 was defined by high inflation and concerns about geopolitics. The Federal Reserve hiked interest rates aggressively. David Bauer is the global head of equity capital markets at KKR.
DAVID BAUER: I think we’re at the start of what is a new cycle, and one that will, I think, extend through 2024.
GURA: This last cycle ended with a sharp downturn. This year, there have been about a hundred new listings on the Nasdaq and the New York Stock Exchange. In 2021, there were more than a thousand. Investors were willing to make riskier bets back then when borrowing was cheap. But Bauer says that’s changed.
BAUER: I think investors are looking for profitability. They do want a company that has a more predictable and understood business model.
GURA: The mood on Wall Street is improving and stocks have been on a tear. There’s less volatility, less worrying about a recession. And Birkenstock, the centuries-old sandal-maker, believes the timing is right for its IPO, so does Instacart. It postponed its stock market debut last year amid the downturn, and its valuation today is billions of dollars smaller. Rachel Gerring is a partner at the consulting firm EY who says companies are being more realistic and no longer chasing sky-high valuations.
RACHEL GERRING: We’re still kind of going through a valuation reset.
GURA: On Thursday, Arm started trading at $51 a share. And the stock ended the day at $63.59, up almost 25%. A successful debut like Arm’s can lead to more and more IPOs, according to Robert Profusek. He’s the head of the mergers and acquisitions practice at the law firm Jones Day.
ROBERT PROFUSEK: Because, you know, the assumption is if you can get something really, really big done, there’s demand. That’s always a big factor.
GURA: And in the weeks and months to come, companies will assess that, including many that are still on the fence about going public, like the fintech company Stripe and Liquid Death, a company that sells canned water.
David Gura, NPR News, New York.
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