The market: Why recent Wall Street IPOs have disappointed

(BFM Bourse) – The latest IPOs in the United States posted mixed results, with investor caution fueled by an adverse market environment. The prospect of a shutdown could also lead to a suspension of examination of all sets of listings on the exchange.

The series of large IPOs that Wall Street has seen since mid-September have led to mixed performances and failed to generate the reaction expected by investors, while caution remains in place.

The prices of the four newcomers to the stock market, Arm, Instacart, Klaviyo and Birkenstock, were all below their IPO prices. “When the first three (Arm, Instacart and Klaviyo) went up, it created a lot of optimism, euphoria,” notes Richard Truesdell, an IPO attorney at Davis Polk & Wardwell.

Arm (+24%), Instacart (+12%) and Klaviyo (+12%) won the night of the first day in the New York market.

Adverse environment

“As a result, people who didn’t see themselves getting into the stock market in the fourth quarter were trying to speed things up,” the lawyer continues. “Unfortunately (the three newcomers) fell into the red, then Birkenstock fell from the start (-12% in the first session).”

“The subsequent sessions were not good, and that’s important for candidates, (…) who may freeze their plans,” explains Avery Spear of Renaissance Capital.

Since Birkenstock hit its first gallop, no big name has publicly registered with the US regulator, the SEC (Securities and Exchange Commission), for listing.

The social network Reddit, the data management specialist Databricks and the months-awaited dematerialized payment company Stripe remain behind. Wall Street saw no IPOs above $20 million this week.

“The current environment is not favorable for fragile companies looking to go public,” points out Avery Spear, “but it’s also not favorable for strong companies because they can’t get the price they ‘want.’

For her, the Birkenstock case is a good example of the “valuation continuum” between stock market seekers who think they are better than they are and investors who are always cautious.

For Jay Ritter, a professor at the University of Florida and a specialist in “IPOs” (initial public offerings, the English term for introductions), the low volume of introductions, despite the recent arrival of four heavyweights, is due to a lack of market appetite rather than a reserve of candidates who “do not want to accept the upgrade valuation”.

Shutdown shadow

To Richard Truesdell: “If you haven’t filed this week, it’s pretty unlikely you’ll be able to go public before turn off“, i.e. the possible suspension of part of the activities of the US government due to the lack of a budget agreement.

Originally set for Sept. 30, the deadline has been pushed back to Nov. 17, but many fear the deadlock won’t be resolved by then, especially since it took many weeks for the Republican majority to find a leader.

The SEC said the “closure” would have the effect of suspending its examination of all IPO filings.

In addition to this perspective, operators also have in mind the deterioration of the economic environment due to the brutal tightening of monetary policy that began last year, notes Avery Spear. Geopolitical turbulence following the war between Israel and the Palestinian Islamist movement Hamas also clouded the horizon.

“Even though the current environment is difficult, with the headwinds, things have improved a little bit,” Jeremy Barnum, JPMorgan Chase’s chief financial officer, said last week, referring to investment banking, which includes entering stock markets.

A “fresh start” in 2024?

“People are worried about the vitality of the market in the fourth quarter, but there is hope that the first quarter (2024) will be a fresh start and things will improve,” says Richard Truesdell.

For Jay Ritter, “the situation remains volatile” and comparable to the exit from the great collapses of the past, whether the bursting of the Internet bubble in 2000 or the financial crisis of 2008.

“The trajectory seems pretty similar,” he says. “It will take another year of relatively low activity before things return to normal.”

(With AFP)

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