The initial public offering market was again showing signs of fatigue on Monday, with the three big tech deals that priced last week falling again in early trading, with one dipping beneath its offering price.
Arm Holdings PLC
ARM,
the U.K. chip maker, was trading at $50.68, below its $51 issue price from last week. The stock enjoyed a strong debut, closing up almost 25% above its offering price last Tuesday before falling back.
Grocery-delivery app Instacart
CART,
which trades as Maplebear Inc., was last quoted at $30.33, just above its offering price of $30. That stock had gained 40% in its first hours of trading before closing up 12%.
Read now: Instacart shares slump to their IPO price as investors have second thoughts
And Klaviyo Inc.
KVYO,
a digital-marketing company, was trading at $32, above its $30 issue price. Klaviyo also performed strongly early in its debut, gaining 20%, but failed to hold those gains through the close.
Read: Klaviyo IPO: 5 things to know about the digital marketer trying to cut through the spam.
Bill Smith, founder and chief executive of Renaissance Capital, a provider of IPO exchange-traded funds and institutional research, said the performance of the trio of deals could be summed up as “incrementally positive,” while acknowledging that made for a lackluster headline.
“Last week I pointed to Klaviyo as the best indicator of the three,” Smith wrote in commentary. “Its pricing and trading tell us that best-in-class software companies with growth, profitability, and attractive valuations can find buyers. Other tech unicorns will have to wait, and we’re hearing more and more deals push back IPO plans to 2024.”
The markets certainly didn’t help the IPOs, with the Nasdaq
COMP,
S&P 500 and IPO index all seeing their worst week since March, as investors come to grips with higher interest rates that are deemed to be the new normal.
The potential U.S. government shutdown is another headwind. A disagreement between House conservatives and Speaker Kevin McCarthy, who reached a spending deal with President Joe Biden earlier this year, is looking increasingly intractable.
Conservatives want lower spending levels, and if there’s no agreement on either a longer-term or short-term budget by midnight on Saturday, Sept. 30, the government will partially shut down on Sunday, Oct. 1. In a sign of how that’s weighing on the minds of Americans, Google queries relating to a shutdown spiked early Monday, as seen on the real-time Google Trends page.
A shutdown would immediately pause the IPO market, according to Smith.
This year’s more sizable IPOs have averaged gains of 18% or more over the offer price on their first day but are now up only about 6%, he said.
“Aftermarket returns are an important ‘autocorrect feature’ of the IPO market, and right now they tell us that future IPOs will need to price at greater discounts to public peers,” he wrote. “Ultimately that price discipline is good for investors.”
The Renaissance IPO exchange-traded fund
IPO
was down 0.3% on Monday but has gained 24% in the year to date, while the S&P 500
SPX
has gained 12.5%.
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