In a remarkable debut on the Nasdaq on Thursday, Arm, the British chipmaker, surged to a staggering valuation of $54.5 billion, sparking speculation within the financial sector about a potential resurgence in the IPO market. The company, which had operated as a privately-owned entity under the umbrella of SoftBank since 2016, re-entered the public domain with resounding success.
Employing a licensing business model with robust mid-90s gross profit margins, Arm commands a dominant presence, powering an astounding 99% of premium smartphones. This unique business model distinguishes Arm’s inaugural appearance on the public markets from that of other companies, particularly those in their growth phases that have yet to turn a profit.
The IPO market had witnessed a gradual deceleration in 2021, recording 1,010 IPO deals according to Dealogic. This figure then plummeted to a mere 173 in 2022. Professor Jay Ritter of the University of Florida Warrington College of Business drew parallels between this current slump and similar periods that followed the stock market crash in 1987 and the Great Financial Crisis.
In stark contrast to Arm’s monumental debut, Instacart, slated to commence trading on the Nasdaq next Tuesday, eyes a valuation of up to $10 billion. Rainmaker Securities’ Managing Director, Greg Martin, has also cast a keen eye towards Klaviyo, a marketing and data automation platform, as well as Turo, a prominent car-sharing service.
Goldman Sachs underlined the common phenomenon of stocks experiencing an initial surge on their inaugural trading day, and Arm was no exception, surging by an impressive 24%. While Arm’s historic performance could signify the dawn of a potential IPO resurgence, it may also serve as an inspiration for more companies to consider taking the plunge from the sidelines.
Over the ensuing weeks, scheduled market activity coupled with optimistic projections from industry experts will provide greater clarity on the potential trajectory of market movements. Investors are advised to exercise prudence and consider valuations carefully, as stocks with elevated Price/Sales multiples at IPO seldom outperform over the long term.
Amidst the prevailing uncertainty shrouding the market’s trajectory, one incontrovertible truth emerges: the IPO market now stands wide open, poised for an imminent surge. The extraordinary debut of Arm on the Nasdaq, soaring to a valuation of $54.5 billion, acts as a powerful signal, casting a luminous path for aspiring players in this vibrant arena.
Source: Yahoo Finance