The initial public offering (IPO) market showed signs of fatigue on Monday as three significant tech deals that launched last week experienced a dip in early trading. This development, coupled with broader market conditions, indicates a potential slowdown in investor enthusiasm for new tech stocks.
UK-based chip manufacturer Arm Holdings (NASDAQ: ARM ) PLC (NASDAQ:ARMH) was trading at $50.68, slipping under its issue price of $51 from the previous week. Despite a strong debut that saw the stock close nearly 25% above its offering price last Tuesday, it has since declined.
Meanwhile, grocery delivery app Instacart, operating under Maplebear Inc., was trading slightly above its issue price at $30.33. The stock initially surged by 40% during its first hours of trading but ended up closing with a 12% gain.
Digital marketing firm Klaviyo Inc. was trading at $32, surpassing its issue price of $30. It had an encouraging start with an initial 20% gain but failed to maintain those gains till the end of trading.
Bill Smith, the founder and CEO of Renaissance Capital, described these performances as "incrementally positive". He highlighted Klaviyo as the best indicator among the three, suggesting that top-tier software companies with growth, profitability, and attractive valuations can still find buyers. However, other tech unicorns may face delays, with more IPO plans being pushed back to 2024.
A potential U.S. government shutdown is another looming concern. An ongoing disagreement between House conservatives and Speaker Kevin McCarthy over spending levels threatens to cause a partial government shutdown on October 1 if no budget agreement is reached by September 30. This situation has led to a spike in Google (NASDAQ: GOOGL ) queries about a shutdown, reflecting public concern.
Smith warned that a shutdown would immediately halt the IPO market. He noted that larger IPOs this year have averaged first-day gains of 18% or more over the offer price but are now only up about 6%.
He also emphasized the importance of aftermarket returns as an 'autocorrect feature' of the IPO market, suggesting that future IPOs will need to price at greater discounts to public peers. This pricing discipline, he believes, benefits investors.
In related news, the Renaissance IPO exchange-traded fund was down by 0.3% on Monday but has seen a 24% gain year-to-date. In comparison, the S&P 500 has gained 12.5%.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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