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The U.S. IPO market, which has been in the doldrums for nearly two years amid rising interest rates, higher inflation, geopolitical tensions and the Russia-Ukraine conflict, seems to be springing back to life. This is especially true following three successful debuts — Arm Holdings Plc (ARM - Free Report) , Instacart (CART - Free Report) and Klaviyo (KVYO - Free Report) — over the past week that have renewed momentum in the IPO market.
Trio Listing Leases Life to IPO
British chipmaker Arm Holdings, which debuted on Nasdaq, 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 was the most high-profile IPO that the Nasdaq has seen since 2021's IPO boom and the biggest U.S. initial public offering of the year.
Grocery delivery operator Instacart popped 12% in a debut on the Nasdaq. It priced its IPO at $30 per share, at the top end of the expected range of $28 to $30, and raised $660 million. CART is the third-largest company to go public in 2023 trailing Kenvue and Arm (read: Instacart Pops 12% On Nasdaq Debut: 6 ETFs in Focus).
Klaviyo shares rose 9.2% on the first day of trading on New York Stock Exchange. Shares were priced in the IPO at $30 each, above its estimated range of $27 to $29 and valuing the marketing automation company at more than $9 billion. It was the third major new U.S. listing in a week.
Upcoming Hot IPOs
With a big pipeline of companies waiting to hit the market, the U.S. IPO market seems well-poised for the coming months. Some of the hottest IPOs include Chime Financial, Stripe and Reddit. Online bank Chime Financial, targeting young adult customers, was expected to go public last year at a valuation approaching $25 billion but it delayed its IPO move in a down market. IT is now expected to debut by the end of the year.
Online payments processor Stripe is one of the most anticipated listings in the tech industry. The company took its first steps to go public in 2021 but now expects to debut this year with a projected valuation of $50 billion (as of Mar 15, 2023). Meanwhile, the social media platform Reddit hold its IPO plans amid a tech IPO bloodbath. The company earned a valuation of $10 billion last August after raising more than $400 million in funding from Fidelity and others. However, it is expected to go public this year.
Additionally, the macro trend is improving, given that inflation seems to have peaked and rate hikes are nearing an end. The Federal Reserve, as expected, kept interest rates steady at a 22-year high in the range of 5.25% to 5.5% in the latest FOMC meeting but signaled the prospect of one more hike this year. This will likely propel IPO activities (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
How to Bet?
While investing in many IPOs at the same time could be difficult, investors could easily tap the IPO resurgence with the two domestic-focused ETFs discussed below:
Renaissance IPO ETF provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies find entry at the end of the quarter when the index rebalances. The fund currently holds 70 stocks in its basket, with double-digit exposure in the top two firms. Technology is the top sector, accounting for 48.3% share, while financials and consumer discretionary round off the next two spots with double-digit allocations each.
Renaissance IPO ETF has amassed $191 million in its asset base while trading in a volume of about 76,000 shares, probably implying additional cost beyond the expense ratio of 0.60% (read: IPO ETFs Look Hot in September: Here's Why).
First Trust US Equity Opportunities ETF (FPX - Free Report)
First Trust US Equity Opportunities ETF focuses on the largest, best-performing and most-liquid U.S. IPOs, and follows the IPOX-100 U.S. Index. New companies seek inclusion on a fast-entry basis after the close on the sixth day of trading. First Trust US Equity Opportunities ETF holds 100 securities in its basket, with the largest allocation going to the top three firms. The ETF is widely spread across sectors, with information technology, industrials, consumer discretionary and healthcare accounting for double-digit exposure each.
First Trust US Equity Opportunities ETF has $739.2 million in AUM and trades in a volume of about 47,000 shares per day. It charges 60 bps in fees a year.
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Are IPO ETFs Springing Back to Life?
The U.S. IPO market, which has been in the doldrums for nearly two years amid rising interest rates, higher inflation, geopolitical tensions and the Russia-Ukraine conflict, seems to be springing back to life. This is especially true following three successful debuts — Arm Holdings Plc (ARM - Free Report) , Instacart (CART - Free Report) and Klaviyo (KVYO - Free Report) — over the past week that have renewed momentum in the IPO market.
Trio Listing Leases Life to IPO
British chipmaker Arm Holdings, which debuted on Nasdaq, 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 was the most high-profile IPO that the Nasdaq has seen since 2021's IPO boom and the biggest U.S. initial public offering of the year.
Grocery delivery operator Instacart popped 12% in a debut on the Nasdaq. It priced its IPO at $30 per share, at the top end of the expected range of $28 to $30, and raised $660 million. CART is the third-largest company to go public in 2023 trailing Kenvue and Arm (read: Instacart Pops 12% On Nasdaq Debut: 6 ETFs in Focus).
Klaviyo shares rose 9.2% on the first day of trading on New York Stock Exchange. Shares were priced in the IPO at $30 each, above its estimated range of $27 to $29 and valuing the marketing automation company at more than $9 billion. It was the third major new U.S. listing in a week.
Upcoming Hot IPOs
With a big pipeline of companies waiting to hit the market, the U.S. IPO market seems well-poised for the coming months. Some of the hottest IPOs include Chime Financial, Stripe and Reddit. Online bank Chime Financial, targeting young adult customers, was expected to go public last year at a valuation approaching $25 billion but it delayed its IPO move in a down market. IT is now expected to debut by the end of the year.
Online payments processor Stripe is one of the most anticipated listings in the tech industry. The company took its first steps to go public in 2021 but now expects to debut this year with a projected valuation of $50 billion (as of Mar 15, 2023). Meanwhile, the social media platform Reddit hold its IPO plans amid a tech IPO bloodbath. The company earned a valuation of $10 billion last August after raising more than $400 million in funding from Fidelity and others. However, it is expected to go public this year.
Additionally, the macro trend is improving, given that inflation seems to have peaked and rate hikes are nearing an end. The Federal Reserve, as expected, kept interest rates steady at a 22-year high in the range of 5.25% to 5.5% in the latest FOMC meeting but signaled the prospect of one more hike this year. This will likely propel IPO activities (read: Bet on Quality ETFs as Fed Keeps Rate Steady, View Hawkish).
How to Bet?
While investing in many IPOs at the same time could be difficult, investors could easily tap the IPO resurgence with the two domestic-focused ETFs discussed below:
Renaissance IPO ETF (IPO - Free Report)
Renaissance IPO ETF provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies find entry at the end of the quarter when the index rebalances. The fund currently holds 70 stocks in its basket, with double-digit exposure in the top two firms. Technology is the top sector, accounting for 48.3% share, while financials and consumer discretionary round off the next two spots with double-digit allocations each.
Renaissance IPO ETF has amassed $191 million in its asset base while trading in a volume of about 76,000 shares, probably implying additional cost beyond the expense ratio of 0.60% (read: IPO ETFs Look Hot in September: Here's Why).
First Trust US Equity Opportunities ETF (FPX - Free Report)
First Trust US Equity Opportunities ETF focuses on the largest, best-performing and most-liquid U.S. IPOs, and follows the IPOX-100 U.S. Index. New companies seek inclusion on a fast-entry basis after the close on the sixth day of trading. First Trust US Equity Opportunities ETF holds 100 securities in its basket, with the largest allocation going to the top three firms. The ETF is widely spread across sectors, with information technology, industrials, consumer discretionary and healthcare accounting for double-digit exposure each.
First Trust US Equity Opportunities ETF has $739.2 million in AUM and trades in a volume of about 47,000 shares per day. It charges 60 bps in fees a year.