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Shein's reported filing signals IPO restart in Q1

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Illustration: Shoshana Gordon/Axios

Shein's confidential IPO filing reported Monday demonstrates a growing push by companies and their bankers to restart the IPO market in Q1.

Why it matters: Lackluster performances of Arm, Instacart and Klaviyo scared the IPO market back into its hole for the winter.

The latest: Today, Panera, which had been signaling its intention to go public, filed confidential IPO paperwork, Axios has confirmed.

Between the lines: While the market environment may be improving, for Shein, there are political risks — both international and domestic — that accompany a listing, Brianne Lynch, head of market insights at EquityZen, tells Axios.

  • The fast-fashion giant has been accused of using forced labor within its supply chain. That makes it easy fodder for politicians in an election year, she says.
  • Additionally, Lynch says, U.S. tensions with China, where it produces much of its product, could also disrupt Shein's business.

Context: The Uyghur Forced Labor Prevention Act, which took effect in 2022, prohibits the importation of goods made with forced labor.

  • Shams Afzal, a managing director at Carnegie Investment Counsel, says Shein has been using a workaround.
  • "By keeping packages under $800, Shein avoids formal entry documentation and duties, making enforcement an impossibility," he says.

Yes, but: The company is, however, diversifying production and distribution by opening facilities in other countries, Lynch says.

  • And its ties to BlackRock-backed Authentic Brands Group and Simon Property Group, a fellow shareholder in the retail operator Sparc, provide it important allies.

By the numbers: Shein raised $2 billion earlier this year at a $66 billion valuation, a steep discount to the $100 billion it was previously pegged at.

  • Per Bloomberg, it's aiming for a $90 billion valuation, which is still a haircut, but it needs to convince investors that its growth warrants a multiple much higher than its rivals H&M and Zara.
  • The online retailer hit $23 billion in revenue globally and $800 million in net profit last year and was on track to hit $40 billion this year, Axios previously reported.

Be smart: Shein is pivoting to market itself as an e-commerce marketplace akin to Amazon (instead of a fast-fashion company) to justify the bump-up, Lynch says.

The big picture: A smattering of IPOs are expected in early 2024, and if successful, will build momentum headed in Q2, Lynch says.

  • The market is projected to be open by Q2 or Q3, barring volatility, before pausing in what is expected to be an uncertain election season, she and other sources say.

Zoom in: There are 1,200 unicorns, companies valued at $1 billion or more, collectively worth $3.8 trillion across several sectors, Lynch says.

  • Many have grown significantly as private companies and about 230 haven't raised capital since 2021, so they will be under particular pressure, Lynch says.
  • Companies have also stayed private an average of 13 years before going public, poising the question of whether they've overstayed their welcome, she says.
  • Plus, strong GDP, continued job growth, cooling inflation, and the end of rate hikes with the prospect of rate cuts by the Fed all point to a healthy environment next year, Lynch adds.

Reality check: Companies and their bankers are trying to figure out what attributes investors are looking for when it comes to growth, profitability and multiples, Lynch says.

  • The current thinking is a company needs growth of more than 30% and to be very profitable to go public, she says.

The bottom line: "A lot of private companies are using this quiet time to get ducks in a row."

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