Tough Luck For September IPO Babies: ARM and Instacart Fall Below Their First-Day IPO Opening Prices

It’s been a busy two weeks in the IPO market. But if you’ve been on an extended vacation, it’s probably for the best. Three major tech companies ended the long IPO drought, which might not last long given their performances…

1/ ARM (NASDAQ:ARM): Down 14% since its opening price. Short sellers have begun ramping up their bets against ARM — which makes up ~5% of the company’s available shares now. Investors have pulled back from the “AI” trade and have initially criticized ARM for being too expensive.

2/ Instacart (NASDAQ:CART): Down 9% since its opening price. In an analysis this week, valuations expert and NYU’s Professor of Finance Aswath Damodaran gave Instacart a fair value per share of $29.32 (4% below yesterday’s closing price) — seeing “less upside… than in some of the other growth companies” he valued in the past.

3/ Klaviyo (NYSE:KVYO): Up 3% from its opening price. The marketing software giant is the bright spot amongst the three but was also the last to go public just two days ago.

Why so volatile? All three companies had fewer shares available to trade (free float) upon their debut — which stood at ~7.5-10%, below the last five-year average of ~20%. In the coming months, lock-up periods will end for early investors and employees, which could further pressure their shares.

Tough luck for Virgos

September, historically known to be a poor month for the market, is living up to its reputation. The S&P 500 and Nasdaq are both down 3.9% and 5.2% respectively this month — with losses growing after the Fed met this week, where they signaled another potential rate hike this year.

“The Nasdaq’s having a weak moment, and investors are looking to rotate into oil and things that haven’t worked previously… and the tech trade is being sold off,” per Longbow Asset Management’s CEO (Reuters).

Forward-looking: Per one senior IPO lawyer, investors asked, “Why should I buy it in an IPO if I can get it at a 20% discount in a few months?” (FT). Their debuts were supposed to reignite the IPO market — but poor performance could jeopardize that. Next month, we’ll get a taste of a non-tech IPO when Birkenstock is expected to go public.