The initial public offering (IPO) market is in rally mode in April, as interest rates moderate and stock valuations bounce back for publicly traded companies.
Last year, significant growth indicators for IPOs began to emerge, as the S&P 500 benchmark index rose 24.2%. Also, the MSCI World Index was up 25.7% over the past year and up 9% year to date as of the end of March.
IPO valuations have risen as a result. Take Birkenstock Holding PLC (ticker: BIRK), the Germany-based shoe manufacturer. Its recent IPO reeled in a robust $8.6 billion market valuation when it went public on Oct. 11. Or how about Arm Holdings PLC (ARM), which went public on Sept. 14? Its valuation rose to nearly $60 billion at its open on the Nasdaq.
The biggest factors impacting the IPO market right now are high interest rates and the performance of IPOs in recent years.
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“Upon IPO, many companies have had limited profits, if any,” says Jeremy Bohne, founder at Paceline Wealth Management in Boston. “That means almost the entire value of the company is based on huge profits expected to arrive long into the future. Valuations of highly priced stocks like these are extraordinarily sensitive to changes in interest rates, which are a key valuation input.”
Many recent IPOs saw a brief period of gains, followed by towering losses, which have yet to be recovered in many cases.
“That’s why the IPO market was essentially frozen for about two years until investors began to expect interest rates would begin to decline again,” Bohne says. “That’s not all bad, though. We’re seeing that a limited number of companies reach IPO, but they are in a stronger operational position and have more reasonable valuations.”
What are the biggest and most intriguing recent and upcoming IPOs in the market right now? Here’s a capsule look:
| Recent/Upcoming IPO | IPO valuation* |
| Astera Labs Inc. (ALAB) | $5.5 billion |
| Reddit Inc. (RDDT) | $6.5 billion |
| Arm Holdings PLC (ARM) | $54.5 billion |
| Ibotta Inc. (IBTA) | $2.3 billion |
| Stripe | $65 billion |
| Shein | $45 billion |
| Skims | $4 billion |
*Estimates for Stripe, Shein and Skims; others are initial valuations at the time of the IPO pricing.
Astera Labs Inc. (ALAB)
IPO valuation: $5.5 billion
Astera Labs, which specializes in connectivity solutions for AI and cloud infrastructure, announced the pricing of its initial public offering of 19.8 million shares on March 19 at $36 per share. Trading on the stock opened at $52 per share on March 20, 46% higher than the original price estimate. The stock went on a blazing price-increase streak before falling back to its April 19 price of $64.49.
Analysts say the stock price should go higher. Of 10 major analysts covering ALAB, one issued a “hold” rating, while nine issued a “buy” call on the stock, according to FactSet data. The consensus one-year target price stands at about $86 per share.
“Astera has been one of the hottest IPOs we’ve seen in 2024, capitalizing on the growing investor demand for all things artificial intelligence,” says Brianne Lynch, head of market insight at EquityZen in New York. “Many pure-play AI companies are still too young to go public and are growing rapidly in the private markets. Therefore, there are few public AI companies, which is one reason why Arm, Nvidia and Astera have all seen such strong performance. Investors want access to this next wave of innovation that’s said to be the biggest thing since the internet.”
The most likely AI-adjacent companies to go public in the near term will be chip, data storage and AI infrastructure companies because these businesses are a bit more mature. “We’re seeing strong demand for these companies amongst private market investors on EquityZen’s platform,” Lynch says.
Reddit Inc. (RDDT)
IPO valuation: $6.5 billion
Just about one month into its publicly traded status, Reddit has come out of the gate staggering, with its share price down 28% from its opening-day high of $57 per share as of April 19.
Why is Reddit in the doldrums?
The social media giant generated $804 million in 2023 sales, a 21% boost from the year before. Yet Reddit lost approximately $91 million from its balance sheet last year, and investors may be waking up to the fact the company has never posted an annual profit.
Even so, analysts are generally bullish on RDDT shares. On April 15, Laura Martin of Needham pegged the company’s one-year target price at $55 (it’s currently trading around $40 per share). She says Reddit can capitalize on the rise of AI and its “front page of the internet” calling card to win over investors.
“We believe GenAI must be able to understand questions from a wide variety of people and to answer questions using popular terms and phrases,” Martin wrote in a new research note. “RDDT is the best source of this type of information, in our view, as its platform hosts 1.2 million conversations and 7.5 million comments every day.”
Arm Holdings PLC (ARM)
IPO valuation: $54.5 billion
British AI-powered chip designer Arm is a clear winner in any recent IPO matchup, returning 62% on a year-to-date basis as of April 19. Shares have slid backward a bit in the last month.
The company, 90% of which is owned by Softbank Group Corp. (OTC: SFTBY), continues to ride Nvidia Corp.’s (NVDA) high-performing coattails (Nvidia currently licenses Arm’s chip design). That partnership has helped boost Arm’s stock, especially after Nvidia posted monster results and guidance for the fourth quarter of 2023, with revenues up 265% from Q4 2022.
Arm has also inked a pact with Google, for which the search engine titan is rolling out its first central processing unit based on Arm technology, called Google Axion.
In its most recent quarter, Arm also beat consensus analyst estimates. Hans Mosesmann, an analyst with Rosenblatt Securities, recently held his “buy” rating on the stock and raised his price target to $180 per share from $140. Mosesmann cited Arm’s AI-fueled royalty growth along with a robust product-licensing strategy as big reasons for its success.
Analysts also expect Arm’s earnings to rise at an annual rate of over 44% over the next five years. That figure surpasses the estimate for Nvidia’s 38% annual earnings growth rate over the same time period.
“Arm is central to the semiconductor industry and is vital for technologies ranging from smartphones to autonomous vehicles,” says Michael Schmied, co-founder and senior financial analyst at Switzerland-based Kredite Schweiz. “Its expansive reach in technology, especially AI, makes it a standout in the current IPO landscape.”
Ibotta Inc. (IBTA)
IPO valuation: $2.3 billion
Denver-based Ibotta debuted on the New York Stock Exchange on April 18 and soared immediately above its $88 initial offering price, gaining 17% before falling back to an April 19 close of $98.
“The 13-year-old rewards and promotions company (eyed) up to a $2.3 billion valuation in its IPO after last raising a Series D at a $1 billion valuation back in 2019,” Lynch says.
Ibotta’s pivot from a consumer business to a B2B business has been an interesting turnaround story.
“Once they started selling into big retailers like Walmart and Dollar General, Ibotta saw their revenue grow 50% and they were able to achieve profitability,” Lynch says. “Ibotta uses AI to power its promotion recommendations for brands and ingest retailer information. It will be interesting to see how much credit inventors give to this AI-related part of their business.”
Ibotta’s pivot to becoming an enterprise software-as-a-service company has also boosted profitability, and software is an industry that investors are eyeballing in 2024. “Enterprise SaaS is one of the top five most popular industries amongst private market investors on our platform,” Lynch says.
Stripe
IPO valuation: $65 billion
Stripe doesn’t have an IPO date, but what it does have is a $65 billion valuation (listed in February) and a recent private stock sale that raised $694 million, according to a Securities and Exchange Commission (SEC) filing published on April 12.
“Right now, people seem really interested in Stripe,” says Steven Kibbel, a certified financial planner and financial advisor at Kibbel Financial Planning. “Stripe helps online businesses handle payments; their money coming in has grown a ton.”
The Ireland-based digital payments company is running hot, with $1 trillion in payment volume reported in 2023, and it now has seen rising interest in an IPO.
Kibbel says Stripe’s management structure is solid, and it has a good head-start on the competition.
“Their bosses are great at what they do, and it’ll be hard for others to catch up to them,” he says. “The online payments industry can still grow, so Stripe looks positioned well for sustained growth. For investors who can stay focused in the long run, Stripe could be a very reliable investment.”
Shein
IPO valuation: $45 billion
This Singapore-based fashion retailer is posting big numbers while it awaits a green light on an IPO in 2024.
Shein, which recorded approximately $45 billion in sales in 2023, is vying for an IPO either in New York or London. However, the latter is more likely given U.S. lawmakers’ flagging of Shein’s alleged forced labor issues in the Chinese market. The SEC is also reportedly looking at Shein’s business practice of shipping clothing to consumers directly from China, which largely evades tax rules in big global markets like the U.S. and the U.K.
Shein doesn’t make its hay manufacturing clothes or even storing and selling them in Amazon-like warehouse facilities. Instead, it aggregates data based on consumer retail preferences and ships the information off to 5,000 global clothing manufacturers, which make those $40 suits and $10 jeans and sell them on Shein’s platform.
“Shein’s massive valuation reflects its dominance in fast fashion, leveraging an agile supply chain that quickly responds to consumer trends,” says Schmied. “Its online retail model capitalizes on global e-commerce growth, making it one of the hottest IPOs in the marketplace.”
Skims
IPO valuation:$4 billion
Skims is a rare example of a young retail brand making physical stores a priority.
Founded by cultural icon Kim Kardashian, Skims has shown its mettle in the capital-raising arena, garnering $270 million last July, which helped push the retailer’s IPO valuation to $4 billion. Kardashian has had a major influence on the buzz surrounding an IPO. With 363 million followers on Instagram alone, she’ll keep Skims’ name in the headlines leading up to the expected 2024 IPO.
Launched in 2019, Skims is making its IPO case with some big sales numbers, including about $750 million in 2023 revenues, up from $500 million the year before.
When Is It Too Late to Invest in an IPO?
It’s always a good idea to avoid a “fear of missing out” mindset, but there are signs that an IPO opportunity has passed and it’s best to move on from a particular stock.
“There’s always another trade on the horizon,” says Grace Chen, founder of UpMarket, an alternative investments platform that privately sources companies for pre-IPO investments. “That said, if you’re paying well above similar private or public market comps, or simple math shows the level of growth or profitability needed to justify your entry valuation will be hard to achieve, that may be a sign it’s too late.”
While every IPO has its own unique qualities and risks, Chen points to these mistakes investors often make with IPO investments:
— Paying too much (i.e., entry valuation).
— Not understanding lockup periods and when large shareholders may end up selling into the market and depressing prices.
— Extrapolating early-stage growth metrics to later-stage companies.
— Not accounting for increasing competition and potential margin compression.
While it’s tempting to jump on the next big thing in the stock market, as Chen suggests, extra research and avoiding common IPO investing mistakes can keep your portfolio from getting dinged.
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Update 04/22/24: This story was published at an earlier date and has been updated with new information.
