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IPO ETFs Look Hot in September: Here's Why

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After a lull lasting for about 18 months, the U.S. IPO market is set to pick up speed in the fall. Growth stocks have staged a strong rally in 2023, buoyed by decreased inflation and an excitement over AI progress. This has placed the Renaissance IPO Index (IPOUSA) ahead of the Nasdaq this year, in terms of performance.

September is already looking like an eventful month for initial public offerings. Beyond a successful Arm Holdings IPO and Instacart’s scheduled entry on Sep 19, marketing automation firm Klaviyo and biotechnology firm Neumora are set to list soon, as quoted on CNBC.

Renaissance IPO ETF (IPO - Free Report) is up 33.3% this year, First Trust US Equity Opportunities ETF (FPX - Free Report) has added about 10% while Renaissance International IPO ETF (IPOS - Free Report) has gained about 9.3%. The S&P 500 is up 15.9% this year (as of Sep 5, 2023). ETFs IPO and FPX have added about 2.7% and 1.2% past month versus 1.5% gains in the S&P 500.

Arm IPO Was Blockbuster

British chipmaker Arm Holdings Plc made a solid debut on Nasdaq under the symbol (ARM) on Thursday. The stock soared as much as 21% on the first day, pushing the market cap to more than $65 billion. The chip designer, which is owned by SoftBank Group Corp., sold 95.5 million American depositary shares for $51 a piece, raising $4.87 billion in its initial public offering that valued the company at more than $54.5 billion.

This is the most high-profile IPO that the Nasdaq has seen since 2021's IPO boom, which cycled into a bust in 2022, and is the biggest U.S. initial public offering of the year (read: Arm Debut Gathers Retail Investors' Love: ETFs in Focus).

Instacart to Debut This Week

Instacart raised its initial price range to between $28 and $30 per share in a regulatory filing Friday, probably due to arm’s successful debut. Instacart plans to offer 22 million total shares when it debuts on the Nasdaq, including from current shareholders.

The grocery delivery platform aims for valuation of up to $10 billion. PepsiCo has agreed to purchase $175 million in a concurrent private placement, according to the company’s securities filing, as quoted on CNBC. The company has turned a profit in recent months.

An Email Marketing Platform Klaviyo in the Line

Boston-based Klaviyo is seeking a fully-diluted valuation of up to $8.4 billion in its initial public offering (IPO - Free Report) in the United States, the marketing firm said on Sep 11, 2023, per Reuters.

Klaviyo, which will be trading under the ticker code of KVYO, will be the first U.S. tech unicorns to go public since 2021. Klaviyo is an especially important deal to watch, since the IPO pipeline contains dozens of enterprise software plays, per Renaissance Capital.

It is selling shares at $25 to $27 apiece and aiming to raise $518.4 million at the top end of the range. However, like most companies, the company's proposed valuation marks a decrease from the $9.15 billion pre-money valuation at which Klaviyo last raised capital in 2021. Klaviyo posted 51% growth in revenue to $164.6 million for the three months ended June 30..

Neumora Therapeutics IPO Flops

Neumora's IPO, only the second this year of a Massachusetts biotech, priced 14.7 million shares at $17 a share on Thursday night. The stock began trading early Friday afternoon with the ticker NMRA, and slumped 4.4% to close at $16.25 a share on a day of broad market declines. After hours, the stock dropped another 3.4%.

Signs of Strength in the Current Market?

This year’s IPO market is expected to rebound, with 30-50 more IPOs expected. The year is on track to reach roughly 110 IPOs raising $22 billion in proceeds. Certain IPOs such as restaurant chain Cava (CAVA), beauty and wellness company Oddity (ODD) and Vietnamese EV maker VinFast (VFS) surged on the debut this year. Renaissance Capital’s shadow backlog features possible fall IPOs from Birkenstock, Waystar, and SeatGeek.

John Chirico, Citi's U.S. head of banking, capital markets, and advisory, anticipates a substantial uptick in the IPO market in 2024, with promising opportunities toward the end of the year, as quoted on Yahoo Finance.

Not a Repetition of 2021 Boom Likely

The year 2021 witnessed an unprecedented IPO boom with 2,388 IPOs raising $453.3 billion, according to EY data, quoted on Yahoo. While this surge is seen unsustainable, stable markets in years like 2018 and 2019 are expected to be repeated in 2024.

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