Last week, the tech industry witnessed some exciting developments as Instacart and Klaviyo filed for their initial public offerings (IPOs), following Arm’s IPO filing earlier in the week. These companies have unique stories to tell, and their performance in the market will shed light on investor demand for new tech offerings. With a large number of companies waiting to go public, these upcoming IPOs could shape the trajectory of the rest of the year.
It has been 20 months since a prominent venture capital-backed tech company went public in the United States, and anticipation has been building in Silicon Valley regarding who would break this dry spell. On Friday, grocery delivery startup Instacart and data and marketing automation company Klaviyo took steps towards making their stock market debuts. Earlier in the week, chip designer Arm, owned by Japan’s SoftBank, announced its plans to hit the Nasdaq after being taken private seven years ago.
While these three companies may not seem connected at first glance, they collectively represent the level of enthusiasm among public market investors for new opportunities. Depending on how they perform early on, their success could inspire other companies to follow suit in the final quarter.
Lise Buyer, founder of IPO consultancy Class V Group, believes that these filings may encourage other management teams to stop waiting for ideal conditions and take action. The valuations achieved by tech companies in 2020 and 2021 were exceptional; however, recent trends suggest that those high valuations are unlikely to return anytime soon.
Instacart provides an interesting case study as it had previously garnered significant attention from venture capitalists like Sequoia and Andreessen Horowitz. However, ahead of its IPO, Instacart experienced a substantial valuation cut due to various factors such as plummeting tech stocks and slowed growth post-Covid. The company’s valuation dropped from $39 billion to $24 billion in March last year before reportedly falling another 50% by the end of 2022. Comparatively, DoorDash, a similar player in the public marketplace, currently trades at 3.8 times revenue, which would value Instacart at around $11 billion.
Despite facing valuation challenges, Instacart has managed to turn a profit for five consecutive periods by controlling costs and reducing staff. Its most recent quarter saw revenue growth of 15% to $716 million, with net income increasing from $8 million to $114 million year-on-year.
On the other hand, Klaviyo has not faced the same pressure to lower its valuation. The company was valued at $9.5 billion in a funding round last year and is growing significantly faster than Instacart. In the second quarter of this year alone, Klaviyo’s revenue rose by 50% to $164.6 million, with a profit of $10.9 million compared to a loss of approximately $12 million in the previous year.
When comparing Klaviyo’s growth rate with publicly traded cloud companies on the Bessemer Cloud Index, it becomes evident that Klaviyo stands near the top with companies trading at around 12 times revenue. This implies a potential valuation close to $7 billion for Klaviyo.
While Instacart and Klaviyo are expected to have significant implications for emerging investors as they shape expectations for the rest of this year and beyond, Arm’s IPO carries different weight altogether. As an arm owned by SoftBank seeking liquidity after significant losses from ill-timed investments in companies like WeWork and Didi Chuxing, Arm is much larger than typical venture capital-backed companies during their IPOs and is based in the UK.
Arm reported $524 million in net income on $2.68 billion in revenue for its fiscal year ending March 2023 according to its filing – slightly below its previous year’s sales figures of $2.7 billion. To achieve a public market valuation of $32 billion, Arm would need a multiple of approximately 61 times earnings. Comparatively, Nvidia, the leader in the semiconductor market, has a price-earnings ratio of 114. However, Nvidia has tripled in value this year and expects sales growth of 170% in the current quarter. Other players like Qualcomm trade at 15 times earnings and Applied Materials at 19 times earnings.
While the tech sector may be experiencing some slowdown with the Nasdaq down by 5.3% in August and heading for its first monthly decline since February, companies must eventually make their move to go public regardless of market conditions. The market will ultimately determine a company’s value, and if it performs well over time, there will always be opportunities to sell shares at higher prices.
According to CNBC’s source ( these recent IPO filings mark an exciting turning point for the tech industry after a dry spell. As more companies apply to go public and embark on their roadshows in September, we can expect further insights into investor demand and potential trends for the rest of this year.