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Thursday, October 05, 2023

Tech Triumphs: The 2023 IPO Tales of Arm and Instacart

By Century Financial in 'Blog'

Tech Triumphs: The 2023 IPO Tales of Arm and Instacart

Synopsis:
In 2023, global IPOs declined, but tech firms like Arm and Instacart stood out. Arm's IPO reached a notable $65 billion valuation, while Instacart navigated valuation challenges to secure $10 billion. Their stories underscore the importance of adaptability in a shifting financial landscape.

An initial public offering (IPO) refers to offering shares of a private corporation to the public in a new stock issuance for the first time. An IPO allows a company to raise equity capital from public investors.

The IPO Landscape:

In the first half of 2023, the global IPO volumes fell 5%, with proceeds down 36% YOY*

The US had its most extensive offering since November 2021*

Asia-Pacific continues to dominate with an approximate 60% share of global IPOs*

The first half of 2023 recorded 615 IPOs with US $60.9b capital raised, a 5% and 36% decrease year-over-year (YOY), respectively. However, some emerging markets are booming with IPO activities, as they benefited from the global demand for rich mineral resources, their vast population, growing unicorns or entrepreneurial SMEs.

The technology sector has continued to be the leading sector in IPO activities to date in 2023.

Valuation of IPO

The valuation of the IPO is done by its investment bankers or underwriters. These entities go through the company’s financials, like the assets, liabilities, performance, and the ability to generate revenue. The data is carefully analysed over a period and is sent for an audit.

They carefully consider few factors to find a fair valuation for the IPO

Potential for growth

An investor would want to invest in a company with substantial growth potential. The valuers consider this as a prominent factor while analysing a company to value the IPO.

Demand for shares

One of the main factors is the demand for an IPO. The demand for the company's shares from retail investors, as well as more prominent institutional investors, is considered to value the IPO.

Peers in the industry

While valuing an IPO, the company’s shares are compared against those of other companies in the same industry and their IPO price bands or valuations.

Why do firms go for an IPO?

The main reason for a company to launch its share in the public is to raise capital for business.

But the story is more than that.

If the existing investors wish to liquidate their interest partially or entirely, listing on a stock exchange can provide a solution.

A successful IPO provides a company with value, reputation, status, and additional finances for funding any merger and acquisition deals.

Mentioned are the recently popular IPOs released.

The Much-awaited Tech IPO

The entrance of the chip designer and an initial public offering (IPO) that caught the eye of the biggest tech companies, Apple, Samsung, and Intel, all signalled their interest.

It was the ARM IPO

Chip designer Arm Holdings Plc secured a $54.5** billion valuation in its U.S. initial public offering on 13th September, 2023

The IPO was a climb down from the $64 billion** valuation.

The stock opened at $56.10 and notched a 24.68%** gain. It gave the British chip designer a valuation of $65 billion, becoming the biggest IPO of the year.

Arm's chip design is used in virtually all smartphones, tablets, and digital TVs. Arm has expanded into artificial intelligence, smart devices, cloud computing, the metaverse, and autonomous driving.

The Rise of Instacart

Founded in 2012, Instacart delivers groceries from chains including Kroger, Costco and Wegmans and had to drop its stock price dramatically to make it appealing to public market investors.

The bulk of Instacart’s competition comes from Amazon and big brick-and-mortar retailers like Target and Walmart.

Some key statistics***

Instacart reportedly generated $2.5 billion revenue in 2022

In 2022, Instacart made a net profit of $428 million

Instacart had an estimated 13.7 million active users in 2022

Its valuation has dropped twice from a $39 billion high in 2021 to $9.3 billion in 2023

InstaCart IPO

Grocery delivery app Instacart bumped its per-share proposed IPO price range from $26 to $28 to $28 to $30, raising its total valuation to $10 billion and the boost in Instacart's IPO price range comes after Arm's IPO, which led to 25% gains on its first day of trading.

Instacart in its first day on Wall Street

The stock closed at $33.70 after hitting a high of $42.95.

Recap

In 2023, while many new companies found it harder to start on the stock market, tech companies like Arm did well. Instacart's ups and downs show the challenges new businesses face today. Both remind us that being flexible and creative is key in changing times.

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