IPO arm wrestle

What does the chart show?<br/><br/>This chart shows the amount raised in the top ten Initial Public Offerings (IPOs) in the US over the past five years and the share price performance since the date of their listing. An IPO is a process by which privately owned companies raise capital, offering shares of their company to the public through listing their shares on an exchange. This can be a very challenging and time-consuming process for companies to undertake and leaves their business subject to the intense scrutiny of investors. IPOs are very volatile, risky investments and performance mostly disappoints, with two thirds of IPOs between 2010 and 2020 underperforming the initial market price in the first three years after flotation (according to a 2021 Nasdaq report). While the vast majority of the top ten IPOs shown in the chart have followed this trend over the past five years, the semi-conductor design company, Arm Holdings, listed on Thursday (14 September) and has traded higher than their initial price. The British-based technology company, which has been the latest to benefit from the recent artificial intelligence (AI) optimism, bounced 25% in the first day of trading, and although this has moderately dropped since, it still remains higher than its issue price. Why is this important? The Arm Holdings IPO is the most valuable listing since electric-car maker Rivian Automotive floated in 2019 and comes at a time when new listings have slumped due to the worsening economic outlook, high market volatility and tightening monetary policies. Investors’ valuations are heavily reliant on forward sales and earnings forecasts, and this is negatively impacted by interest rates. Therefore, valuations are generally depressed in a high-interest environment, which is a key reason why in the last few years company management teams have been waiting for economic conditions to improve before taking the leap of going public. In contrast to Rivian Automotive’s IPO which has fallen over 70% since its listing, the success of Arm Holding’s IPO (or rather absence of any major downfall) may be the catalyst privately owned companies need to deem the public market stable enough to enter. The process appears to be underway, following the recent public listing of online grocery platform Instacart. Last week, the company increased its issue price range and this week, saw a 40% surge in trading during its successful market debut. With additional new listings also lined up, such as marketing and data platform Klaviyo, car sharing business Turo, and shoemaker Birkenstock, investor appetite for IPOs will become a lot clearer and the outcomes should be carefully monitored to determine whether this market is back open for business.