Mar 30, 2024 - Economy

IPOs are picking up again — but don’t expect a flood just yet

Data: Renaissance Capital; Note: Excludes SPACs, market caps below $50m, unit offerings, and closed-end funds; Chart: Axios Visuals
Data: Renaissance Capital; Note: Excludes SPACs, market caps below $50m, unit offerings, and closed-end funds; Chart: Axios Visuals

Astera Labs' and Reddit's recent public listings fetched modest valuations — but their IPOs proved that there's pent-up appetite from investors for new stocks.

Why it matters: Cracking the IPO window back open is no easy task, and attempts last fall came with mixed initial results.

State of play: In addition to the companies already waiting in the wings with listing documents on file with regulators, we're seeing new ones file registrations — among them, digital rewards provider Ibotta.

The big picture: "There's no getting around the fact that investors are hungry for new issues as long as they're priced appropriately," says Lise Buyer, co-founder of IPO adviser Class V Group.

  • "We're not back in 2021 by any stretch — but companies that can tell a strong story that seems feasible have a shot."

Between the lines: It's always about valuations.

  • "The IPO market has been open — even in the 2022 trough," said Elizabeth Reed, Goldman Sachs partner, speaking this week at an Axios Pro event in New York.
  • "The question is: Is the valuation and bid-ask spread — is that valuation where investors are willing to pay?" said Reed. "It's really clear that the bid-ask spread was particularly wide in that time period, and it's consolidating now."

Zoom in: Reddit priced its IPO at a $6.4 billion valuation — much lower than the $10 billion when it last raised private capital in 2021.

  • It had a 48% first-trading-day pop, suggesting it could have priced its shares higher for a bigger valuation.
  • Astera, meanwhile, set its IPO valuation at $5.5 billion (nearly twice its last private valuation of $3.15 billion in late 2022) and saw a 72% pop, also implying it could have gotten a much higher valuation.
  • "Prove yourself … and then six months from now go out and do another offering at a higher valuation," the thinking goes, according to Buyer.

Be smart: It's still too early to pull out definitive trends about how companies will structure their IPOs to optimize for the current market.

  • Both Astera and Reddit had a relatively small floats (under 12%), harkening back to what we saw in the fall.
  • But Reddit also went out on a limb by setting aside an allocation for its top users — an unusual move that adds retail investors into the IPO investor dynamics.

The bottom line: Don't expect a flood of IPOs in the next couple of months — but all signs point to a gradual pickup in activity through the rest of the year.

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