**The IPO Market Returns: A Wave of Tech Companies Seek Public Offerings**
After a prolonged hiatus, the IPO market is stirring back to life, signaling a resurgent appetite for tech companies to go public. According to Colin Stewart, Morgan Stanley’s global head of technology equity capital markets, “the IPO market’s back.”
**A Burst of Activity on the Horizon**
Stewart predicts that 10 to 15 more tech companies could launch IPOs before the end of 2024, with an even more prosperous year ahead in 2025. This optimism stems from recent successful IPOs, such as those of Instacart and Klaviyo, which have priced high and traded strongly.
**Recovery from a Market Hibernation**
The IPO market came to a grinding halt in 2022, as soaring inflation and rising interest rates drove investors away from risk. Tech valuations plummeted, and many companies postponed their IPO plans. This marked a stark contrast to the preceding two years, which witnessed a record number of tech offerings.
**A Glimmer of Hope in September**
A flicker of hope emerged in September 2023, with the debuts of Instacart and Klaviyo. However, the real momentum began last month with the IPO of Reddit, the first major social media company to go public since Pinterest in 2019. Astera Labs, a data center connectivity chip company, also soared on its first day of trading.
**Riding the AI Wave**
Both Reddit and Astera Labs have surged well above their IPO prices, fueled by investor interest in artificial intelligence (AI)-related companies. Morgan Stanley led the underwriting of Reddit and Astera, earning an estimated million in fees.
**Venturing into 2024 with Goldman Sachs**
Goldman Sachs took the lead in the latest venture-backed tech IPO, bringing Rubrik, a data management software company, to the New York Stock Exchange. Rubrik’s debut saw an impressive 16% gain.
**Election Concerns and Valuations**
Stewart highlights that companies considering IPOs may delay their offerings until 2025 to avoid coinciding with the U.S. presidential election in November 2024. Valuations have moderated since the peak of 2021, returning to levels last seen in 2018-2019. Stewart characterized 2021 as an “exhausting” but “amazing” year.
**A Renewed Focus on Growth**
“The market has become more comfortable with paying for growth again,” says Stewart. “Growth companies are getting a fair price, and this is encouraging them to consider going public.”
**Big Names Still on the Sidelines**
Despite the revival of the IPO market, high-profile companies such as Elon Musk’s SpaceX, Stripe, and Databricks have yet to make their public debuts. “They have scale, growth, plenty of investor capital, and are focused on investing for the future,” says Stewart. “An IPO is not on their near-term horizon.”
**Conclusion**
The IPO market has rebounded from its recent doldrums, fueled by investor enthusiasm for tech companies. Morgan Stanley anticipates a busy year ahead, with more tech offerings expected in 2024 and an even stronger showing in 2025. As the market continues to stabilize and investors regain confidence, companies that have put their IPO plans on hold may seize the opportunity to tap into public markets and raise growth capital.
Data sourced from: cnbc.com
